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For Spain’s Jobless, Time Equals Money
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IN DEPTH Pages 12-13

OPINION: Apple’s Real Fear: Google, Not Samsung Page 11

VOL. XXXVI NO. 254

(India facsimile Vol. 4 No. 58)

TUESDAY, AUGUST 28, 2012
asia.WSJ.com

More Bet On Yuan’s Decline This Year
BY DANIEL INMAN Investors, long enamored with the yuan, have increasingly soured on the Chinese currency and are boosting their bets that it will decline against the dollar in the coming months. The yuan is down almost 1% against the dollar this year, and a full-year decline would be the first for the Chinese currency since China ended a decadelong peg against the dollar in 2005. The yuan has risen 30% since then, including a 4.7% rise last year, and many investors had expected the appreciation would continue. But a slowing Chinese economy and a decision by the central bank to loosen its tight control over the currency have driven this year’s decline. Many investors who had been betting that the yuan would rise have reversed their positions. “Bets on the depreciation of [yuan] are gaining momentum,” said Wee-Khoon Chong, Asia rates strategist at Société Please turn to page 14

Republicans Set Stage for Romney Nomination

Samsung Shares Fall as Investors Fear More Pain
BY EVAN RAMSTAD SEOUL—Samsung Electronics Co.’s market value dropped more than $12 billion as investors fretted that the company could face damage from yet another lawsuit—this one over Samsung’s new flagship smartphone. A $1.05 billion verdict Friday in San Jose, Calif., opened the door for a federal judge to bar sales of some older models of Samsung cellphones and tablet computers. Apple Inc. could seek such an order this week, likely setting up a decision next month. But Samsung investors on Monday were more worried that the verdict could signal what lies ahead in a second case Apple brought involving newer Samsung phones and different patents. Apple filed that case in February in the same court and in June asked a judge to bar sales of the Galaxy S III smartphone pending the case’s outcome. The judge hasn’t ruled on the request. Samsung’s shares fell 7.5%

A Giant Falls
Samsung Electronics share price. Monday’s close: 1,180,000 won, down 7.5%
1.4 million won 1.3 1.2 1.1 July August
Source: SIX-Telekurs via Factiva The Wall Street Journal

Apple’s victory shifts the balance of power................. 22 Asian phone makers face big setback.............................. 23

Agence France-Presse/Getty Images

Republicans’ big push to sell Mitt Romney to the American people slowly came to life on Monday, as the party prepared for its convention in Tampa, Fla., and the main speeches were delayed until Tuesday amid concerns over the approaching Tropical Storm Isaac. Page 5; updates at WSJ.com

Monday on the Korea Stock Exchange, logging their biggest single-day drop since the global economic downturn began in late 2008. Samsung’s stock finished at 1.18 million won ($1,039.74) a share, its lowest close in a Please turn to page 14

Aspiring Coal Magnate Digs Himself a Hole
BY DAVID WINNING SYDNEY—Nathan Tinkler’s bold bets on Australian resources have turned the former electrician into one of Australia’s most high-profile entrepreneurs, allowing him to indulge a passion for fast cars and contact sports. But a failed 5.3 billion Australian dollar (US$5.5 billion) takeover campaign for Whitehaven Coal Ltd. has cost Mr. Tinkler more than a loss of face and a blow to his pride. Thermal coal, used to generate electricity, costs half of its mid-2008 peak, making the indicated price tag for Whitehaven hard to justify. Also, much of Mr. Tinkler’s wealth is tied up in the stock market, including Whitehaven shares, fueling doubts over whether he could have afforded a deal. Mr. Tinkler’s grand plan was to own the dominant coal producer in New South Wales state’s Gunnedah Basin, supplying Asian utilities through the world’s largest coal-export terminal at Newcastle. Big Asian economies such as China and Japan rely on Australia for their coal supply. During a string of dealmakings that began in November 2009, Mr. Tinkler bought a large coal deposit from a unit of Rio Tinto PLC for A$480 million and made it the flagship asset of his Aston Resources Ltd. vehicle, which listed in Australia less than a year later with a valuation of A$1.2 billion. Mr. Tinkler then orchestrated the A$5 billion-plus combination of Aston Resources and Whitehaven Coal earlier this year, which gave him 22% of the merged company. Taking Whitehaven private was seen as the next piece in the jigsaw to control a big chunk of Australia’s coal supply to Asia. But Mr. Tinkler’s bid for Whitehaven never appeared to be a sure thing, at least in the eyes of the market. One concern was the timing, given that thermal prices Please turn to page 14

Inside

Ford makes a push into China’s central and western provinces. Corporate News ..... 18

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2 | Tuesday, August 28, 2012

THE WALL STREET JOURNAL.

PAGE TWO

What’s News—

Inside

Business & Finance: China Cosco faces a sea of red ink. 15

Agence France-Presse/Getty Images

Pakistani Prime Minister Raja Pervaiz Ashraf waves upon his arrival at the Supreme Court in Islamabad. The court Monday gave him three more weeks to decide whether to obey its order to reopen an old corruption case against President Asif Ali Zardari or face the prospect of being ousted from office like his predecessor.

Current Account: The opposing fortunes of Apple and Facebook. 15

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Business & Finance
n Aozora Bank said it will take up to another decade to repay public funds used to bail out its previous incarnation, Nippon Credit Bank, in the 1990s, illustrating how long it can take taxpayers to get their money back. 15 n China Construction Bank warned of risks from the bank’s rising nonperforming loans in eastern China. 20 n Hon Hai’s chairman said he is committed to reaching a deal to take a capital stake in Sharp. 16 n Indonesian coal miner Bumi Resources recorded a $322 million first-half loss, the latest sign slid-

ing commodity prices are catching up with producers across Asia. 17 n BHP is selling one of Australia’s largest undeveloped uranium deposits as it seeks to conserve cash and adjusts development plans. 17 n Iron-ore explorer Sundance accepted a takeover offer from the Sichuan Hanlong Group that is 21% lower than what it offered a year ago. 18 n Tata Consultancy plans to add a software center in Minneapolis this year as India’s top IT firms step up hiring in the U.S. to try to blunt criticism that outsourcing is costing American jobs. 19 n Dutch auto maker Spyker plans to create a car based on

fragments of Saab technology owned by a Chinese investor who will also finance the venture. 18 n ECB officials are considering steps to keep government bond yields in struggling euro members from rising too high, without committing to explicit caps. 6 n Spain’s economy was weaker than initially thought last year, putting the government further behind in its task of engendering a jobs recovery. 13

pursuing more economic and social reforms. 3 n Japan’s ruling party forced an electoral reform bill through a parliamentary committee, a move that will likely prompt the opposition to submit a censure motion against Prime Minister Noda. 4 n Indian Prime Minister Singh denied allegations of wrongdoing in the allocation of coal blocks. 4 n The Taliban beheaded 17 civilians and killed 10 Afghan soldiers in separate incidents. n A Syrian military helicopter went down after it was apparently hit during fighting between government forces and rebels in Damascus, activists said.

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World-Wide
n Myanmar’s government announced a long-awaited cabinet shuffle, as President Thein Sein seeks to strengthen his hand in

Markets: SEC looks at easing IPO ‘quiet period’ rules. 20

ONLINE TODAY
Most Read in Asia Business: Video
wsj.com/video

Tech: Video
wsj.com/video

Southeast Asia
wsj.com/searealtime

1. Apple Victory Shifts Power Balance 2. Apple Wins Big in Patent Case 3. Opinion: Apple’s Lawsuit Sent a Message to Google 4. After Victory, Apple Patently Rules in Mobile 5. He Left Big Footprints on Moon, Earth

Most Emailed in Asia
1. Singapore Leader Urges Tolerance of Foreigners 2. The Secrets of Your iPhone and iPad 3. This Man Wants to Clothe the Planet 4. Samsung’s Bad Bet 5. After Victory, Apple Patently…

Australian banks are ranked the world’s third in terms of market capitalization, but the sector may face a rough patch with a mining downturn.

Muslims in Southeast Asia are among the world’s most devout, according to a Pew Research Center survey.

Heard on the Street: The risks of central banks’ policies. 28
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A spoof video from software firm Atlassian pokes fun at pair programming.

THE WALL STREET JOURNAL.

Tuesday, August 28, 2012 | 3

WORLD NEWS: ASIA

Tokyo Governor Keeps Up Isle Rhetoric
BY PHRED DVORAK AND TOKO SEKIGUCHI TOKYO—As Japan’s government is trying to smooth a quarrel with China over the sovereignty of a set of islands that lies between them, the man who ignited the current flare-up shows no sign of letting up the heat. “We must build a telecommunications base, a port, a meteorological station’’ on the disputed islands, said Shintaro Ishihara, the governor of Tokyo and a well-known nationalist, whose controversial proposal to have the city buy the islands has ballooned into a heated diplomatic brawl. “Without such things, we won’t have effective control of them,’’ the popular four-term governor said in a recent interview. Mr. Ishihara’s plans are proving awkward for the Japanese government, which is struggling to ease tensions over those islands, which lie between Okinawa and Taiwan and are called Senkaku in Japanese and Diaoyu in Chinese. The islands are controlled by Japan, but claimed by China and Taiwan as well. Although the sovereignty of the islands is the focus of periodic spats between Japan and China—most recently in 2010—the issue had been off the radar until April, when Mr. Ishihara announced that Tokyo was in negotiations to buy the islands from a private Japanese owner, and started raising donations for their purchase. As of mid-August, Tokyo had collected around 1.5 billion yen ($19 million), Mr. Ishihara said. Mr. Ishihara’s move prompted the Japanese government to step in and say it would buy the islands instead. China has said it won’t allow the land to be purchased by anybody. Over the past few weeks, groups of activists from Hong Kong and Japan have made unauthorized landings on the islands to push competing claims, sparking harsh rhetoric from both sides and anti-Japanese demonstrations in China. The Japanese government on Self Defense Forces there,’’ he said, referring to Japan’s version of the military, whose activities are constitutionally limited to defense. Mr. Ishihara pooh-poohed the idea that relations with China will improve if the islands are left alone, pointing out that the Hong Kong activists that landed there a few weeks ago threw a brick at a Japanese coast-guard vessel that was trying to prevent them from approaching. People say “if Ishihara buys [the islands], who knows what will happen. But if the country buys them, it won’t do anything, so there won’t be any friction with China,’’ said Mr. Ishihara. “Well, there will be friction if things continue like this.’’ Throughout the interview, in addition to referring to China by the standard Japanese term “Chugoku,” Mr. Ishihara often used the word “Shina,” a derogatory term used during Japan’s occupation of much of China. But Mr. Ishihara took a much less aggressive tone on another set of islands, known as the Liancourt Rocks, whose sovereignty is now the subject of strained relations between Japan and South Korea. Tensions started rising in early August, after South Korean President Lee Myung-bak visited the Korea-controlled islands, called Dokdo in Korean and Takeshima in Japanese. The incident sparked a still-escalating diplomatic battle between Japan and South Korea, featuring aggressive rhetoric, canceled bilateral meetings and threats by Japan to take the matter to an international court. Mr. Ishihara said that the South Korean control over the islands dated back to the period after Japan lost World War II and that it is tough to overturn that now. “Too much time has passed since then,” said Mr. Ishihara. “It’s very unfortunate but it’s partly a done deal now.’’

Agence France-Presse/Getty Images

Tokyo Gov. Shintaro Ishihara at the nationalist-linked Yasukuni Shrine in Tokyo to honor Japan’s war dead on Aug. 15. Monday moved to head off further steps by Mr. Ishihara, rejecting the city of Tokyo’s request to land on the islands for a survey to determine their value. The city plans to go ahead and survey the islands from the sea, and Mr. Ishihara on Friday said he himself would lead a second survey team to land there in October—with or without permission. In the interview, Mr. Ishihara said that his quest for a foothold on the disputed islands is driven by a fear of China, which is building up its maritime forces and has been increasingly assertive over territorial claims in the Pacific in recent years. “Think of Tibet,’’ Mr. Ishihara said. “They don’t have a country. They don’t have a leader. They’ve even lost their culture.…I don’t want Japan to end up as a second Tibet.’’ To bolster Japan’s claims, Mr. Ishihara is proposing that either Tokyo or the national government build facilities on the islands—now uninhabited—including a fishing port, a weather station and a base for radio transmissions. “If worst comes to worst, we would probably station Japanese

Online>>

See video excerpts of The Wall Street Journal’s interview with Tokyo Gov. Shintaro Ishihara at Asia.WSJ.com.

Myanmar Cabinet Shake-Up Fortifies Reform Base
BY PATRICK BARTA Myanmar’s government announced a long-awaited cabinet reshuffle Monday, as President Thein Sein seeks to strengthen his hand in pursuing more economic and social reforms. Nine of the cabinet’s ministers were reassigned to new positions, according to a statement posted on the president’s website, marking the biggest government shake-up since a nominally civilian administration took power in Myanmar last year. The reassigned ministers included Kyaw Hsan, previously the country’s information and culture minister, who was widely regarded as a hardliner who resisted expanding freedoms for the country’s closely monitored press. He will now move to a less important ministry known as the Ministry of Co-operatives. It wasn’t immediately possible to reach Mr. Kyaw Hsan, who will be succeeded by Aung Kyi, a senior official who in years past served as a government negotiator with thendissident Aung San Suu Kyi and whom residents described as sympathetic with President Thein Sein’s reform process. The announcement also said that several important ministers would now be attached to the president’s office. They included Aung Min, a former railway minister who has played a lead role in President Thein Sein’s efforts to negotiate peace agreements with armed ethnic minority groups in the country. They also included Soe Thein, a former industry minister who is also seen as a supporter of more economic change. It wasn’t immediately clear who would be appointed to be the new railway minister, while the new industry minister will be Aye Myint, formerly a science and technology minister. It’s “good that good people are being given important positions,” said Aung Naing Oo, a Thailandbased political analyst who follows Myanmar. “The fact that the president has appointed four people to his office—reform-minded people— is a good sign that he is reinforcing his second wave of reform.” Investors and analysts have been junta stepped down last year. Since then, Mr. Thein Sein—himself a former military officer—has led a sweeping reform program that has included releasing hundreds of political prisoners, loosening restrictions on the Internet, and floating the country’s currency to help modernize the economy. Ms. Suu Kyi, meanwhile, was elected to a parliamentary post this year after years of house arrest. U.S. and European officials have responded by easing many of the tough economic sanctions they put in place in recent years to punish Myanmar’s military for alleged humanrights violations. But U.S. leaders still maintain some restrictions, including a ban on imports from the country. The new U.S. ambassador to Myanmar, Derek Mitchell, recently said in an interview with The Wall Street Journal that the country’s reform process remains “fragile,” and some residents and investors have worried that more conservative elements within the government could reassert themselves and slow the pace of change. The latest reshuffle could make that less likely, at least

Reassigned minister Kyaw Hsan anticipating a major cabinet shuffle for months amid intensifying rumors of a split between reformers and conservatives in Myanmar’s new government, which assumed power after a decades-old military

in the short term. The most immediate impact of the reshuffle could be to clear the way for more press freedoms, though many journalists have been skeptical of some of the most recent reforms. The Ministry of Information last week announced that Myanmar was ending the longstanding practice of prepublication censorship, but journalists could still face sanctions after publication if they anger the authorities. Government restrictions circulated among journalists recently include admonitions that warn journalists against publishing anything deemed “negatively” critical of the state or its policies. Maung Wuntha, a veteran journalist and head of the Myanmar Journalists Association, said Monday’s reshuffle “is something like placing the right man in the right place.” “Kyaw Hsan was increasingly unpopular among the media people. So he was moved to another, silent place,” he said. —Celine Fernandez contributed to this article.

European Pressphoto Agency

4 | Tuesday, August 28, 2012

THE WALL STREET JOURNAL.

WORLD NEWS: ASIA

Japan Faces Opposition Frank Gehry’s Opus Building Claims Top Hong Kong Sale To Electoral Reform Bill
BY TOKO SEKIGUCHI TOKYO—Japan’s ruling party forced an electoral reform bill through a parliamentary committee Monday, a move that will likely prompt the opposition to submit a censure motion against Prime Minister Yoshihiko Noda and nudge forward the process leading to a general election. Even if the ruling Democratic Party of Japan’s majority in the lower house succeeds in getting the bill passed Tuesday, rejection is almost certain in the opposition-controlled upper house. The bill aims to rectify the greater weighting that parliamentary seats in many rural areas have over those in urban areas. The DPJ forced the bill through a special lower house committee on political ethics and public offices election, a move opposition parties criticized as overly aggressive and heavy-handed. Opponents boycotted the committee deliberations in protest. The bill seeks to amend the current system, which has been deemed unconstitutional by Japan’s supreme court. The main opposition Liberal Democratic Party proposes that the amendment be limited to address its unconstitutionality, with more time being set aside to discuss larger issues. The ruling DPJ in turn accuses the opposition of taking critical bills hostage in the squabble over the timing of a general election. Last week, the ruling DPJ pushed a bill to approve the issuance of bonds valued at 42% of the current fiscal year’s national budget through the parliamentary financial commitA buyer reportedly paid $61 million for an apartment perched in one of Hong Kong’s loftiest neighborhoods, setting another record in a city already known for its sky-high prices. The apartment is situated on the city’s Peak and is part of architect Frank Gehry’s first creation in Asia, the Opus. The building, which was completed in March, has an undulating glass facade that curves and offers each floor a distinct vista of the surrounding leafy environs. Last year, project developer Swire Properties’ chief executive said the company had “every expectation it will break records.” Analysts said Monday the sale price is the highest ever in Hong Kong. Local media said that for a 6,200-square-foot unit, it was the highest price per square foot ever paid in Asia, and the secondhighest in the world after London’s One Hyde Park. Centaline Property Agency head of research Wong Leung-sing said the price didn’t surprise him, given the fame of its architect. “They’re selling it not as an apartment, they’re selling it as a masterpiece,” said Mr. Wong. “It’s just like buying artwork.” Swire has said it intends to lease the dozen apartments that make up the site. The company declined to confirm the Opus purchase or reveal any details about the property’s leasing progress to date, though a spokeswoman said one unit was recently leased for

850,000 Hong Kong dollars (US$110,000) a month. —Te-Ping Chen

Opposition parties in Japan are increasing pressure on the prime minister to call an early election. Above, Japan’s parliament in session this month. tee in a similar manner, but opposition parties are likely to vote it down in the upper house. LDP President Sadakazu Tanigaki said his party will likely submit a censure motion against the prime minister this week, criticizing Mr. Noda’s handling of recent territorial spats with South Korea and China. While legally nonbinding, a censure motion typically leads to opposition refusal to cooperate with the government, effectively creating legislative gridlock, especially in a divided parliament. The opposition is increasing the pressure on Mr. Noda to call an election by boycotting parliamentary deliberations. But an early election without amendment to the current law could result in the court nullifying the outcome in some districts. In March 2011, the supreme court ruled that in the 2009 general election, votes in less populous districts were worth more than those with larger populations, but the court declined to invalidate the results. Mr. Noda maintains that the court ruling doesn’t infringe on the prime minister’s right to dissolve parliament and call an election. However, Naofumi Taguchi, directorgeneral of the election department of the internal affairs and communications ministry, told the special parliamentary committee Monday that the possibility of the supreme court invalidating election results “can’t be denied.” Based on the latest census data, local media have calculated that the greatest disparity in the weighting of electoral districts across the country was between a rural district of Kochi prefecture on Shikoku Island, and a district in Chiba prefecture near Tokyo, where Mr. Noda is from. A vote from the Kochi district was worth 2.48 times one from the Chiba district, the calculation showed.

China has a message for Hollywood: The door to the fastest-growing film market is not wide open. Chinese film regulators say they are cracking down on ChinaU.S. co-productions as several new films have exploited existing coproduction rules to gain easy entry into the Chinese film market, according to a report from the state-owned China Daily. Some film companies are doing the absolute minimum, such as adding a Chinese actor to a film in a supporting role, to slide their movies under a classification that was meant to benefit both markets, the report said, citing the deputy head of China’s State Administration of Radio, Film and Television, Zhang Pimin. “[They’ve created] a complete American story with a small Chinese element and a Chinese actor, and they call it a coproduction,” Mr. Zhang was quoted as saying. A separate article in the state-owned People’s Daily say the criticism is directed at a string of co-productions, including timetravel action film “Looper” and big-budget epic “Cloud Atlas,” that are slated to hit Chinese screens. —Laurie Burkitt Keep up on China minute by minute with The Wall Street Journal’s China Real Time Report at wsj.com/chinarealtime

China Film Watchdog Issues Warning to Hollywood

India’s Prime Minister Denies Wrongdoing in Coal Allocation
NEW DELHI—Indian Prime Minister Manmohan Singh on Monday described as “clearly disputable” a federal auditor’s report that claimed the government lost billions of dollars in potential revenue in the allocation of coal blocks that has prompted calls for his resignation. By Santanu Choudhury, Saurabh Chaturvedi and Mukesh Jagota Mr. Singh denied allegations of wrongdoing in the allotment of the blocks in a prepared speech in Parliament, amid protests from opposition parties. “I wish to say that any allegations of impropriety are without basis and unsupported by the facts,” the prime minister said while making his first public comment on the coal-block allocation after the Comptroller and Auditor General of India published its report on Aug. 17. Mr. Singh’s statement came a day after hundreds of activists under the banner of India Against Corruption tried to march to the residences of some political leaders, including the prime minister, to protest the coal scandal. They were detained by police. The opposition has been blocking Parliament’s proceedings, demandare allegations of irregularities in the allocation of telecommunications licenses and alleged kickbacks related to the hosting of an international sports event. The auditor says it calculated the losses by looking at what the government could have received had it auctioned the blocks competitively instead of selling them directly to 25 companies, including Essar Energy PLC, Hindalco Industries Ltd., Tata Steel Ltd., Tata Power Ltd. and Jindal Steel & Power Ltd. The prime minister disputed the calculations, and said the findings “are flawed on multiple counts.” The auditor’s “computations can be questioned on a number of technical points,” he added. Mr. Singh said that the process of allocating coal blocks to private companies was in place since 1993, before the coalition government took charge, and that previous governments have also directly allocated coal blocks. Prakash Javadekar, a spokesman for the main opposition Bharatiya Janata Party, said the “country is upset with the prime minister’s statement. It is just points and lists of excuses. He is hiding facts.” —Rajesh Roy contributed to the article.

Bloomberg News

WORLD WATCH
TRADE

India’s Talks With China Fail to Tackle Imbalances
China raised the issue of India’s import tax on power-generation equipment and New Delhi sought Indian companies access to Chinese government contracts at a meeting on Monday of their commerce ministers that offered little in solving the nations’ widening trade imbalances. The trade deficit has been a thorn in India-China relations. China has emerged as India’s largest source of imports, from industrial equipment to laptops and cosmetics. But India’s exports have mainly been raw materials, with the top two being copper and iron ore. India’s trade deficit with China jumped 42% to nearly $40 billion in the fiscal year ended March 31, and was the largest contributor to the country’s overall gap between exports and imports. Their total bilateral trade was more than $75 billion, up more than 27% from the previous year. India’s current-account deficit— which measures the balance of trade with the world—was a record 4.5% of gross domestic product in the quarter ended March 31. Speaking after the meeting, Indian Commerce Minister Anand Sharma and his Chinese counterpart, Chen Deming, told reporters that the two countries needed to address the tradegap issue and reiterated their

respective stands, but didn’t announce any specific measures. Mukesh Jagota and Prasanta Sahu SOUTH KOREA

Moody’s Upgrades Rating
Moody’s Investors Service raised South Korea’s sovereign-credit rating by one notch to Aa3, on par with that of China and Japan, citing the country’s strong fiscal fundamentals and resilience to external shocks amid growing concerns about Europe’s financial crisis and a global slowdown. The rating of Aa3 is the highest South Korea—Asia’s fourth-largest economy—has received from the ratings company, which also assigned a stable outlook. The upgrade, which Seoul had expected since Moody’s raised its outlook on the country’s previous A1 rating to positive from stable in April, will bolster South Korea’s case that its economic fundamentals are strong enough to cope with the latest global crisis, though it is unlikely to lead to a significant pickup in foreign interest in Korean bonds. In-Soo Nam

Associated Press

Prime Minister Manmohan Singh ing Mr. Singh’s resignation after the auditor said the government lost up to 1.85 trillion rupees ($33 billion) by allocating licenses for 57 coalmining blocks from 2004 to 2011 without a transparent auction. The government has rejected the opposition’s demand, saying that auctioning could have pushed up the cost of coal and therefore the cost of generating electricity, as most of India’s power plants are run on the fuel. The auditor’s report came as an embarrassment for the Congress party-led coalition government, which is facing a deluge of corruption allegations since 2010. Among them

Online>>

For more breaking news, go to WSJ.com/World and follow @wsjworld on Twitter

THE WALL STREET JOURNAL.

Tuesday, August 28, 2012 | 5

WORLD NEWS: U.S.

Romney Seeks to Boost Image as Storm Looms
BY COLLEEN MCCAIN NELSON AND PATRICK O’CONNOR TAMPA, Fla.—Mitt Romney enters the most important week of his political career dogged by a nasty tropical storm but hopeful it will pass in time for a circle of friends and supporters to give his presidential campaign the powerful lift it has been seeking all summer. Republicans have gathered here on Florida’s Gulf Coast for a convention that will launch Mr. Romney into a general-election campaign that will be short, intense and extremely expensive. More than that, it will offer the nation a stark choice in governing philosophies. The convention stakes are high because Mr. Romney trails President Barack Obama in both national polls and polls in most of the crucial swing states that will decide the election. His campaign and party will have but three hours of broadcast television in total Tuesday through Thursday to start winning over a voting public that hasn’t warmed to him through 15 months of regular campaigning. The task is made harder by Tropical Storm Isaac, which was churning up the Gulf of Mexico on Monday, packing 65 mile-per-hour winds and threatening to reach hurricane strength before making landfall on the northern Gulf Coast by late Tuesday or early Wednesday. Forecasters expect Isaac to be a Category 1 hurricane, the weakest category with winds of 74 to 95 miles per hour, when it makes landfall. On Sunday, Republicans were busy reprogramming the gathering by jamming into Tuesday, Wednesday and Thursday nights the presentations they are counting on to offer Americans a more personal glimpse of their nominee. Mindful that Mr. Romney is often uneasy and occasionally clumsy talking about himself, the Romney camp will turn to an unusually large circle of others who know him, including people he has helped through his church and business career, in an attempt to make the prospective nominee more approachable to voters who seem to respect him more than like him. The convention even will include references to Mr. Romney’s Mormon faith, a subject he has seldom discussed. The convention will feature people who were helped through Mr. Romney’s work in his church, where he served in leadership roles, campaign officials said. A Mormon church-member will give the invocation on Thursday, the day Mr. Romney speaks. Meantime, Olympic athletes will thank Mr. Romney for leading the 2002 Winter Games in Salt Lake City. Those featured will include Michael Eruzione, captain of the 1980 “Miracle on Ice’’ hockey team that defeated the Soviet Union. Viewers will hear from the cofounder of Staples, the office-supply chain that grew under Mr. Romney’s guidance, and from Ann Romney, who will speak about their love story and her battle with multiple sclerosis. Polling shows that Mr. Romney has persuaded voters that he has good managerial skills and ideas for fixing the economy. But the public

GOP Nominee Aims To Make His Case
[ Capital Journal ]
BY GERALD F. SEIB TAMPA, Fla.— The leader Republicans will nominate for president this week is a man of many paradoxes, a figure well known yet not entirely understood, someone who has been examined for two full presidential campaigns but whose personal beliefs remain the subject of intense debate. As a consequence, one of the great questions of this stormy convention week in Tampa is whether the mysteries of Mitt Romney will, at least to some extent, be resolved for voters in the next three days. One of the things a national convention does is allow a candidate to either introduce or reintroduce himself to the nation, and particularly to voters who aren’t political junkies. “I think they’re still learning about him,” says Eric Fehrnstrom, a long-standing Romney adviser. “The convention serves as a platform for satisfying a lot of people’s curiosity about Mitt Romney.” This opportunity is particularly important for Mr. Romney, who didn’t spend a lot of time explaining his life after winning the Republican nomination in the spring, as some candidates have. His campaign decided instead to take on the task this week. And while some politicians are easy to understand, he isn’t one of them. The paradoxes only begin with the fact that he started his political life as a social-policy moderate in Massachusetts, but now champions a conservative line on abortion, gun control and gay marriage. He seems distant or even aloof to many who don’t know him, yet inspires intense affection and deep loyalty among those in the circle immediately around him. In an era of profound ideological divides, he doesn’t strike either friend or foe as particularly ideological. Sometimes he has steered away from talking about his record as governor of Massachusetts, yet seems to have embraced it— including his championing of a controversial health-care overhaul—in recent days. He is cool and unflappable in his public persona, yet is known as a practical joker, and someone prone to the occasional angry outburst, in private. He is one of the wealthiest people ever nominated to be president, yet is famously cheap in his personal tastes. Even Democrats don’t seem entirely sure what to make of him. Is he best attacked—as opponents as diverse as Ted Kennedy in the 1990s and his Republican opponents this year decided—as a “weather vane” who moves whichever way the wind blows? Or, as the Obama camp has taken to more recently, as a captive of the extreme right wing of his party who can be counted on to

Mitt Romney, above in April, enters a key week as the GOP convention kicks off. sees President Obama as more likable and attuned to their lives. Russ Schriefer, a senior adviser to Mr. Romney, said the convention would provide voters with a fuller understanding of the Republican candidate. “By the end of Thursday, you’ll have the complete picture of his life,” he said. Mr. Romney has long asserted that Mr. Obama has failed as a president, and much of the convention will be aimed at reinforcing that argument. The set design, for instance, includes a digital counter ticking upward to represent the national debt. But having worked to raise doubts about Mr. Obama’s leadership, Romney advisers say they want the convention to take the next step of convincing voters that their candidate is the better choice. GOP officials such as Gov. Chris Christie of New Jersey, who is scheduled to give a televised, primetime speech, will help make the case. Mr. Romney recently gave hints of how he might approach that challenge himself. In an op-ed in The Wall Street Journal, he sought to paint a picture of how the country would be better under his leadership and to root the picture in his personal history. His plan for a “stronger middle class,’’ he said, grew from watching the companies he bought through his private-equity firm thrive when people were given the skills to innovate. The expected effort to give voters a fuller sense of Mr. Romney builds on other recent moves to show more of his private life. For the first time, a small pool of reporters recently was permitted to accompany him to church. The Romney family also invited Fox News cameras into their New Hampshire vacation home, offering up anecdotes about shopping at Costco and Mr. Romney ironing his own shirts. In another potential hint of his future course, Mr. Romney offered a rare embrace of the Massachusetts health-care law he shepherded as governor, saying he was “very proud’’ of a law that is disliked by many conservatives as a precedent for Mr. Obama’s health law. “I’m the guy that was able to get health care for all of the women and men in my state…and we did it without cutting Medicare and without raising taxes,’’ he said on Fox News. He was responding to a question about how he counters Mr. Obama’s claim that Democrats offer more health-care support to women. The convention also will showcase support for Mr. Romney from a number of Hispanics, a group that as a whole is backing Mr. Obama by large margins, opinion polls show. In addition to Hispanic GOP officials, such as New Mexico Gov. Susana Martinez and Sen. Marco Rubio of Florida, the convention will include speed skater Derek Parra, the first Mexican-American to win gold in the Winter Olympics, and Lucé Vela Fortu?o, the first lady of Puerto Rico. Josh Romney, one of Mr. Romney’s five sons, said the effort to introduce his father to voters should help combat some of the damage done by the deluge of ads Mr. Obama’s campaign launched this summer, which sought to put in a negative light Mr. Romney’s business career and decision to release two years of tax returns, a more limited release than most candidates opt for. “There are definitely a lot of misperceptions about my dad,” he said. “This will be an opportunity at the convention to talk about some of the things that my dad doesn’t talk about on the campaign trail.” Josh Romney said his father often struggles to talk about himself, not wanting to boast. That is why the convention will feature speakers offering their personal experiences with Mr. Romney. “The best way to judge someone is to look at how they’ve lived their lives,” Josh Romney said. The Republican presidential candidate has been actively involved in deciding how he will be presented to the television audience, personally signing off on the stage design after rejecting several alternatives and weighing in on the themes attached to each evening’s program. He has been tapping out ideas for his speech on his iPad for weeks, advisers said. Each night, another part of Mr. Romney’s life will be unfurled on a Frank Lloyd Wright-inspired stage, as photos and biographical videos flash across 13 screens. Some of the broad strokes will be familiar to many voters, including the argument that Mr. Romney’s leadership of Bain Capital, a private-equity firm, makes him better prepared than Mr. Obama to address the country’s economic challenges. But many of the insights about church and family will be new. Advisers to previous GOP nominees said Mr. Romney needs to paint an uplifting vision for the country under his stewardship. “His speech needs to be forward-looking and have some real solutions,” said Scott Reed, a Republican strategist who managed former Kansas Sen. Bob Dole’s 1996 presidential bid.

adhere to its positions? Intriguingly, his cool and slightly enigmatic persona is something he has in common with the man he is trying to drive out of the White House, Barack Obama. Their backgrounds are wildly different in many ways—one the scion of a wealthy and prominent family that provided a traditional upper-class upbringing, the other the son of a single mother whose early life was unconventional by almost any standard. Yet they are similarly disinclined to engage in the backslapping common in their chosen profession, and can be almost clinical in analyzing problems before them. Yet Mr. Romney is, for obvious reasons, the less well-known of the two despite the long road he has traveled to this point. How he goes about resolving some of the mysteries and uncertainties will be crucial to the outcome of an election that lies just 70 days away. That’s because the race is close, and much of the electorate already is locked in on either the Obama or Romney side. The universe of undecided voters is small. A look inside polling data suggests that many of those who are undecided, or at least still persuadable, should be available to Mr. Romney. They don’t tend to give Mr. Obama high marks for his job performance, they aren’t inclined to think the country is on the right track and they are more conservative than liberal.

Associated Press

In an era of profound ideological divides, the former Massachusetts governor doesn’t strike either friend or foe as particularly ideological.
Yet the problem for Mr. Romney is that they don’t have a particularly favorable image of him. They tend to hold more negative views of him than they do of Mr. Obama, and many of them are younger voters—the kind who have had a particularly hard time warming to Mr. Romney. A significant portion appear to think that he is out of step with them. “They (voters) don’t know much about Mitt Romney and they have been told a bunch of terrible things about him,” says Haley Barbour, a former Mississippi governor and Republican national chairman. Mr. Romney will arrive in Tampa with the support of conservatives well in hand, and his choice of Paul Ryan as his running mate has inspired a passion among them that had been in short supply. His challenge lies among those less convinced, about either him or the president. How Mr. Romney fills in the blanks for them—how he resolves the Romney mysteries—this week and in the debates to come will determine the outcome.

6 | Tuesday, August 28, 2012

THE WALL STREET JOURNAL.

WORLD NEWS: EUROPE

European Bank Weighs Bond Strategy
BY BRIAN BLACKSTONE FRANKFURT—European Central Bank officials are considering steps to keep government bond yields in struggling euro members from rising too high, without committing to explicit caps that could threaten the central bank’s balance sheet and independence, according to a person familiar with the matter. The central bank wants to help bring down government financing costs through targeted purchases of government bonds, while preserving their flexibility to change course when needed and to maintain pressure on governments to rein in budget deficits and revamp stagnant economies. To achieve that delicate balance, officials are moving in the direction of informal, flexible-yield objectives for shorter-maturity bond yields of Spain and other at-risk countries, according to the person familiar with the matter. The central bank is unlikely to finalize anything before its Sept. 6 policy meeting, at the earliest. Yet the basic contours are starting to take shape. The thinking, the person said, is that the ECB would guide investors toward a target, or range, for government bond yields of Spain and others by publicly communicating specifics about the amount of the bond purchases it conducts, as well as the details on the types of bonds it buys. For instance, if the central bank says it bought 1 billion ($1.26 billion) worth of shorter-dated

Frayed Bonds | European Central Bank may revive bond-buying program
J F M A MAY J J A S O N D ECB buys government bonds of Greece, Ireland and Portugal. Spends 16.5 billion in the ?rst week. Bundesbank President Axel Weber (left) announces opposition to buying bonds within hours of program's creation. M J J AUG. S O N D

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Mr. Weber announces his resignation, in part due to opposition to bond purchases. Jürgen Stark resigns for similar reasons six months later. J ECB refrains from purchasing government bonds after committing 220 billion since May 2010, beginning a ?ve-month pause that continues.
Note: 1 billion =$1.2564 billion

ECB expands bond purchases to include Spain and Italy, spending 22 billion the ?rst week. New Bundesbank President Jens Weidmann (left) opposes decision. M J JULY AUG. S O N D

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ECB President Mario Draghi (left) says in a speech the ECB will do ‘whatever it takes’ to preserve the euro, fanning hopes of renewed bond purchases.
Photos: Bloomberg News (Weber, Draghi); Associated Press (Weidmann)

Mr. Draghi says ECB ‘may undertake’ interventions in markets ‘of a size adequate to reach its objective,’ raising speculation of large-scale interventions as early as September. Bundesbank again opposes the plan.
The Wall Street Journal

Spanish bonds, it could move investors toward the yields it deems appropriate by raising or lowering purchases in subsequent weeks. This would give Madrid and Rome time to reduce their budget deficits and retool their stagnant economies to regain the trust of investors. An ECB spokesman declined to comment, and referred to a statement the central bank made last Monday that it is misleading to report on decisions that haven’t yet been made. “You can guide market expecta-

tions very easily,” said Jacques Cailloux, chief European economist at Nomura. “You can provide a message on [bond yields] through quantities” of purchases, he said. What ECB officials are weighing differs from a hard yield cap. Such a policy involves publicly announcing a target and committing massive resources to defend it if needed. The ECB has had informal guides on bond yields before, but by stressing the limited nature of the program undermined their effectiveness. ECB President Mario Draghi signaled a bond-buying revamp after

the ECB’s last meeting on Aug. 2. “Exceptionally high” risks are embedded in many government bonds markets, he said, and to the extent to which these “risk premia” include a euro breakup scenario, they are “unacceptable.” The central bank “may undertake” interventions in markets “of a size adequate to reach its objective,” Mr. Draghi said, as long as the countries affected ask for assistance from Europe’s bailout funds first, and agree to strict conditions on fiscal and economic reforms. Spanish and Italian bond markets have rallied sharply since then, in part on speculation that the ECB would use some form of yield target to guide future purchases. This would be a significant departure from existing policies. Under the current program, which has been shelved for the past five months, the ECB intervened in bond markets but only announced total purchase amounts—without details on countries or maturities—each Monday. Investors didn’t know the size of the interventions until long after they occurred. The ECB was able to influence bond yields for a time, but the ad hoc nature of the purchases kept financial markets guessing. It ultimately spent over 200 billion buying bonds in 2010 and 2011, but to little lasting effect. “The old [bond-buying program] was aimed at preventing a spike in bond yields,” Mr. Cailloux said. “They were trying to stabilize the market without a strong view on where bond yields should be.” Officials also damped the program’s effectiveness by repeatedly, and publicly, referring to it as “limited.” ECB members are rethinking

this approach, too. “Regarding whether it’s unlimited or limited—we don’t know,” Mr. Draghi said on Aug. 2. Any measures, he said, “need to be adequate to reach their objectives.” A new-and-improved program still faces hurdles, analysts warn. Even if ECB officials can specify how much a euro-breakup scenario is embedded in bond markets, yields also are affected by other factors, such as deficit and debt levels that are tough to quantify for each country. For instance, Spain has a much higher budget deficit than Italy but Italy’s debt level is larger. Each has a different implication for yields. A more fundamental problem is that the ECB may become captive to economic and political forces outside its control. Austerity measures have weakened economies across Southern Europe. If politicians balk at reforms, the ECB would face a dilemma: maintain bond purchases and lose its credibility; or cut countries off and risk severe fallout in bond markets. “They would have to accept that they lose independence and they’re in the hands of politicians,” said Carsten Brzeski, economist at ING Bank. One thing that won’t change: Skepticism from Germany’s central bank, the Bundesbank. Within hours of the bond program’s inception on May 10, 2010, Axel Weber—who then headed the Bundesbank—announced his opposition. He ultimately resigned his post in part over bond buying, as did Germany’s other top central banker at the time, former ECB chief economist Jürgen Stark. German officials say buying bonds puts the ECB in the realm of fiscal policy, hurting its credibility. Mr. Weber’s successor, Jens Weidmann, voted last year against expanding bond purchases to include Italy and Spain. “In democracies, Parliaments, not central banks, should decide about such comprehensive sharing of risks,” Mr. Weidmann told German magazine Der Spiegel in excerpts of an interview released Sunday. “It’s clear and it’s known that Mr. Weidmann and the Bundesbank…have their reservations about programs that envisage buying bonds,” Mr. Draghi said Aug. 2. By mentioning Mr. Weidmann specifically, Mr. Draghi broke the ECB’s tradition of keeping its internal deliberations and votes a secret. But doing so accomplished two things. It put Mr. Weidmann on the record, by the ECB itself, as being in opposition, giving him cover in Germany. It also signaled the ECB wouldn’t let the Bundesbank keep it from acting aggressively.

In Lisbon, a woman Sunday passes graffiti criticizing Portugal’s low minimum wage. International creditors will arrive Tuesday to review the country’s budget.

Reuters

The Summer Staple With Legs
ON STYLE 8

Tuesday, August 28, 2012

asia.WSJ.com

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At Clarins, a guidebook and online videos show women the series of steps to apply Shaping Facial Lift serum.

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Clinique says it needs to ‘coach’ women to use Repairwear Laser Focus serum for 12 weeks. Its samples each mark two weeks’ dosage.

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F. Martin Ramin for The Wall Street Journal (3)

To dispense the right amount of face wash, Clearasil developed its ‘PerfectaWash’ device to help consumers who were using too much and drying out their skin.

Products Come With Complicated Rules, as They Promise More to Consumers Who Expect More
BY ELIZABETH HOLMES The first time Natalie Zee Drieu read the directions for Shaping Facial Lift serum from French beauty brand Clarins, she paused. The booklet explained a multi-step application technique: Squirt out a small amount of serum, warm it between the hands, sit with elbows on knees and, using hands and the weight of the head, gently apply pressure to the forehead, cheeks, chin and other points on the face, holding each position for about 10 seconds. “Wow, this is a lot of stuff to do,” she thought. “This is like homework.” For a week, Ms. Zee Drieu, a 39-year-old mother and style blogger in San Francisco, ignored the instructions and just rubbed a little serum on her face before bed. But one night out of curiosity she went through the whole process, and the results surprised her. “I could see more of a difference,” she says. “People tell me my face looks skinnier.” As skin-care products make ever-bigger promises, their makers find themselves in a curious position: They need to drill their consumers in how to use them properly. If women don’t, they won’t see the benefits and will stop buying the pricey products, the logic goes. Consumers, meanwhile, seem to have higher expectations of product performance than ever. As a result, the beauty and skin-care industry is paying more attention to what’s known as “compliance”—the correct use of a product over time. Brands are producing Web videos, giving out samples and designing new dispensers, all to encourage consumers to use products properly and stick with the regimen to get the desired results. “We’re coaching her all along the way,” says Lynne Greene, global brand president of Clinique and other divisions at Estée Lauder Cos. Skin care is a strong segment of the beauty industry. U.S. sales reached $10.3 billion in 2011, a 3.6% increase over 2010 and a nearly 11% rise over 2006, according to market research firm Euromonitor International. Sales of anti-aging products rose 6.9% in 2011, reaching nearly $2.9 billion. One sizable hurdle: U.S. consumers are known for brevity when it comes to skincare routines. “Women in the U.S. throw on that cream and go,” says Terry Darland, president of LVMH Beauty, which includes the Dior brand. Women in Asia are known to use 11 different products in a typical regimen, and women in Europe seven or eight. But in the U.S. the number is three or four, Ms. Darland says, typically an eye cream, a serum and creams for day and/or night. Another difficulty is knowing how much to use. Some are in the more-is-more camp, meaning they use more product because they think it will lead to faster results. Others use products sparingly. The biggest challenge, though, is keeping fickle consumers hooked on a product long enough to experience what are sometimes gradual results. The recommended time window for some products is months long—an eternity for people who like to try to new products. Some brands have formulas specifically meant to deliver near-term results, in addition to the longer-term benefits. “Consumers are looking for immediate gratification,” says Art Pellegrino, vice president, research and development at Elizabeth Arden, whose Ceramide “Plump Perfect” line is designed to offer immediate benefits like moisturizing, as well as longer-term wrinkle repair. Turning a new regimen into a habit takes time. Industry lore says people need 21 days to fully adopt a new product or task into their routine. But in reality it can take much longer than that. A 2009 study in the European Journal of Social Psychology found that it took an average of 66 days for a person to perform a task automatically. Beauty brands sold in department stores’ glass counters have relied on their

When Skin Cream Gets Bossy
own sales associates to explain how to use products. But as more shoppers go elsewhere for products—whether online or in a self-serve store like Sephora—brands must find other ways to instruct women. Clarins has about a dozen how-to videos for its facial-care products on its website and YouTube. The minute-long video for the Shaping Facial Lift serum features a model demonstrating the application technique’s steps while short on-screen text describes the motion. The brand wants to teach customers not only how to do it, but also why, says Allyson King, vice president of education. It tells consumers the facial serum technique is intended to increase “microcirculation” and “lymphatic drainage” while increasing the serum’s penetration. Convincing consumers to stick with a product or regimen over several weeks is made difficult by the industry’s love of samples. Especially with so-called prestige brands, shoppers expect free trial-size products, which typically contain at most a two-week supply. Clinique, the big U.S. makeup and skincare brand, is rolling out a sampling program for Repairwear Laser Focus, an antiaging serum, that is meant to “coach” users in longer-term use. Please turn to next page

8 | Tuesday, August 28, 2012

THE WALL STREET JOURNAL.

Beauty Gets Bossy: Following Rules
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F. Martin Ramin for The Wall Street Journal, styling by Elizabeth Stallmeyer (Proactiv)

LIFE & STYLE

Dior’s Capture Totale Intensive Night Restorative Crème relies on counter salespeople to remind customers the cream is best used at night, when skin cells are regenerating.

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Proactiv gives new customers a card with a telephone appointment time to call a skin-care expert, who answers questions and reminds them to use the product twice a day.

Continued from previous page The product promises to improve skin texture and reduce wrinkles after four weeks, and at 12 weeks, “the visible wrinkle reducing power is close to a laser procedure. 63% to be exact,” the text in a product ad says. As part of a test of the sampling program this spring, department-store shoppers in Tennessee and Florida got samples of Repairwear with instructions to return the tiny empty bottles in two weeks. “If that bottle is empty you really have been using Repairwear Laser Focus serum twice a day for 14 days,” copy on the plastic bag encasing the sample said. “You have now seen some progress.” People who returned the first got two more bottles, this time with a new marketing message. “Enjoy a full month’s supply,” the message read, outlining benefits the user should expect. “It’s important to us that we keep reminding her, ‘Here’s where you started and this is how much progress you’ve made,’ ” Ms. Greene says. Sales of the product in those two states rose 59%. For its Even Better Clinical Dark Spot Corrector, a product said to deliver maximum results at 12 weeks, Clinique provides a laminated card with graduated shades. Users are supposed to pick the shade that matches the spot they want to eliminate, then track their progress.

For consumers with acne, the problem often is reminding them to use the right amount consistently. Clearasil, owned by Reckitt Benckiser, recently introduced a hands-free dispenser called PerfectaWash, to provide a correct “dose” of the acne cleanser. People tend to dry out their skin by using too much, the company says. Proactiv, whose products are sold mainly through TV commercials from Guthy-Renker, puts a laminated card in each shipment with instructions to keep by the sink. With its service called Proactiv 365, consumers can call up an “expert skincare advisor,” who answers questions and offers reminders to stick with the regimen, even after skin has cleared up, says Lisa Bratkovich, senior vice president of marketing at GuthyRenker. A card enclosed with the first product shipment even assigns the customer a phone appointment time. “We highly encourage them to call,” she says.

Complex Skin>>

Scan this code to watch a video on longer skin-care instructions, or see it at WSJ.com/Fashion.

A Staple of Summer Sticks Around
[ On Style ]
BY CHRISTINA BINKLEY Like a certain type of summer weekend house guest, white jeans are sticking around much longer than anticipated. That’s not necessarily a bad thing. The cool-and-easy look of white jeans is easily adaptable to cooler weather, happily breaking old rules that dictated white pants be packed up at summer’s end. Citizens of Humanity is bringing white jeans out in its winter line, in colors like “ermine” and “basmati,” says Noam Hanoch, the denim brand’s designer. A stark-white Citizens jean will be on sales floors in December. “White jeans can be very beautiful in winter,” Mr. Hanoch says, waxing poetic about crisp white jeans with a navy blue pea coat, which reminds him of a look Ali MacGraw wore in the 1970 movie “Love Story.” Michael Kors styled white jeans with a white ribbed turtleneck sweater and a shaggy Mongolian lamb vest in ads for his fall collection this month. Fashion and interior designer Kelly Wearstler played with the theme for fall: She bleached black denim to white—then airbrushed dark strips that skim down either side of the thighs. “Pure white denim seems very, very fresh,” says Nicole Fischelis, Macy’s group vice president of global forecasting. She says white jeans are likely to appeal to fashionforward consumers. “It’s a very modern attitude,” she says. Jeans maker J Brand, which has white jeans in its “classics” line, as well as a more fashion-forward collection that will hit stores in late October, says it will offer white all the way through winter to next spring. Online retailer Shopbop last week had pages of white jeans from Rag & Bone, J Brand, 7 For All Mankind, AG Adriano Goldschmidt, James Jeans, Paige Denim and other brands; none was on end-of-summer sale. There is something slightly rebellious about wearing white jeans in cold weather— breaking the traditional American ban on white clothes after Labor Day, which this year falls on Sept. 3. Some people still feel
Clockwise from left: SplashNews; WireImage/Getty Images; Michael Kors; Eileen Fisher; J. Crew; J Brand

Clockwise from above left: French Vogue editor Emmanuelle Alt; Pippa Middleton; a Michael Kors ad pairing white jeans with a shaggy Mongolian lamb vest; Eileen Fisher white jeans with layers in soft gray; jeans for fall and winter from J.Crew and J Brand. white can go wrong. “If you unknowingly saunter into an event wearing clothes out of season, people will judge you,” writes K. Cooper Ray, on his Social Primer blog. In an email, he suggests people pack bright whites away for the winter. (And while you’re at it, he notes, “throw the madras and seersucker in the storage box as well.”) White jeans can be daring in other ways. They have a sexy side—at the London Olympics, hunky swimmer Ryan Lochte announced that he likes girls who wear them. Elizabeth Hurley created a stir in the mid-naughts by announcing that white jeans were her favorite pants. But to some, the memory of their fashion-fad popularity in the 1980s is a turnoff. And some shoppers worry white pants will add inches or be magnets for dirt and stains. People sometimes tell Tobias Levine, a designer of the Public School men’s fashion brand, that “guys don’t wear white jeans,” he says. But Public School, which is returning this season after a hiatus, plans to keep white jeans in its year-round collection. To wear white jeans in cold weather, pair them with clothes appropriate for the weather outside. Slim jeans tucked into long brown boots can look sleek with any sweater or blazer. Tossing a winter-white fisherman’s sweater over white jeans is a cozy romantic weekend look. Mr. Levine, who wears white jeans year-round, suggests that men don gnarled wool socks, tuck the jeans into them and add work boots. Feel free to pile on the layers—scarves, sweaters and anything from a motorcycle jacket to a faux fur coat. Or throw a beige or gray herringbone jacket over layers of cashmere sweaters in those shades. There is disagreement in the fashion community over whether to pair white jeans with dark colors; Ms. Wearstler says the contrast “will cut you off,” making a person look stumpy. Others say white jeans look sharpest when paired with navy blue tops and black boots. For the office, a blazer over a buttondown or white blouse can add panache. “I love the combination of black, white and camel,” says Gayle Spannaus, J.Crew’s fashion director. “White denim is a seasonless, classic building block.” For Mr. Hanoch, white in winter is an antidote to the fad of jelly-colored jeans that has swept denim fashions of late. “There was so much color for a few seasons,” he says. “White is such a palate cleanser.”

THE WALL STREET JOURNAL.

Tuesday, August 28, 2012 | 9

OPINION: REVIEW & OUTLOOK

Cheesecake Factory Medicine

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he liberal assault on Paul Ryan’s Medicare reform has often been ugly, but that’s not to say it hasn’t been instructive. While ripping Mr. Ryan, ObamaCare’s intellectual architects have been laying out in more detail their own vision for the future of American health care. It’s a vision that all Americans should know about before they go to the polls in November.
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No one did more to sell the Affordable Care Act than Peter Orszag, the former White House budget director who claimed during 2009-2010 that as much as a third of health spending is “waste” that doesn’t improve outcomes. But now that he’s repaired to Wall Street and writes an online column, he’s deriding the idea that better incentives can reduce costs and sneering at the “healthcare competition tooth fairy.” So get a load of Mr. Orszag’s Tinker Bell alternative, which he called the “most important institutional change” after ObamaCare passed in 2010: the Independent Payment Advisory Board composed of 15 philosopher kings who will rule over U.S. health care. Who are these Orszag 15? Well, nobody knows. The board was supposed to be up and running by the end of September, but the White House is avoiding naming names for Senate confirmation until after the election. No one knows, either, what this group of geniuses will propose, but that too is part of the grand Orszag plan. ObamaCare included dozens of speculative pilot programs that are supposed to make health-care delivery and business models less wasteful. Mr. Orszag’s payment board is then supposed to apply the programs that “work” to all of U.S. medicine through regulation, without Congressional consent or legal appeal. Seriously. It doesn’t take a mythical childhood metaphor to mock this theory. Mr. Orszag’s style of central planning—in what was already the heaviest regulated U.S. industry before ObamaCare—has failed over and over again in Medicare since the creation of the fiat pricing fee schedule in the 1980s.
i i i

Meanwhile, another ObamaCare godfather, the surgeon and influential New Yorker magazine writer Atul Gawande,

has further instructions for the medical health care mostly conducted via a pad masses, this time from—believe it or and pen, and beepers and fax machines, not—the Cheesecake Factory, the chain in the iPhone era? Why are there so few restaurant. geriatricians when the first wave of Baby Dr. Gawande’s point is that medicine Boomers is already turning 65? Why is it would function better if care were deliv- still so hard to find usable information ered by huge health systems that can about quality and prices? achieve economies of scale, like commerThe reason isn’t a lack of hospital adcial kitchens. Care ought to be standard- ministrators or technocratic experts. ized like preparing a side of beef, with a More often than not it’s that patients “single default way” to aren’t the true consumperform each treatment Paul Ryan’s critics and ers. The government is, supposedly based on eviand medical providers inObamaCare’s dence, with little room for evitably serve the payarchitects reveal their master. personalization. No doubt health care Mr. Ryan’s insight is real vision for health that health care would could learn a lot about efficare: coercion. ciency from a lot of induswork better if patients tries, but to understand were controlling their the core problem with asown dollars. His reform sembly-line medicine, recall that Obama- accepts the fact that health, disease and Care actively promotes medical corporat- treatment are usually complex, individism. The reason isn’t to encourage ual and unpredictable, not commodities business efficiency but for political con- that can and should be reduced to prototrol. Liberals believe in health-care con- cols, metrics, algorithms. i i i solidation because fewer giant corporaThe immediate danger of the Orszagtions are easier for Mr. Orszag’s central committee to control, and more amenable Gawande-Obama vision is that layer on layer of new regulation will lock in lessto its orders. Thanks to ObamaCare, Cheesecake than-best practices. This makes the staFactory medicine is already becoming a tus quo worse, because too-big-to-fail reality. Irving Levin Associates, a research oligopolists have less incentive to innofirm that tracks health-care mergers and vate to reduce costs and improve quality. The longer-run danger is that Mr. acquisitions, reports that M&A hit $61.2 billion in the second quarter and the Orszag’s cost board starts to decide what highest annual levels since the 1990s. types of care “work” for society at large Three of five hospitals now belong to a and thus what individual patients are alparent company’s network, while more lowed to receive. One way or another, than half of physicians are employed by health costs must come down. And if Mr. hospitals or systems, not independent Ryan’s market proposal is rejected, then government a la Orszag will do it by practitioners. On the insurer side, too, incumbents brute political force. A murderer’s row of liberal healthare demolishing their smaller rivals. Aetna is buying Coventry Health Care, a care gurus—Zeke Emanuel, Neera company that administers Medicare and Tanden, Don Berwick, David Cutler, Uwe Medicaid benefits, for $5.6 billion. Well- Reinhardt, Steve Shortell, Mr. Orszag, Point made the same play in acquiring many others—recently acknowledged as Amerigroup for $5 billion in July, while much in the New England Journal of last October Cigna laid out $3.8 billion Medicine. They conceded that “health costs remain a major challenge” despite for HealthSpring. This bureaucratization will amplify ObamaCare. That would have been nice everything patients and businesses de- to know in, oh, 2009 or 2010. Anyhow, their big idea is the very old spise about the current system: the unintelligible $103,234.61 bill for a turned an- idea of price controls that are “binding kle, the doctor who can’t take a phone on all payers and providers,” much as call because of how the hospital sched- post-RomneyCare Massachusetts is already doing. When that strategy fails as ules shift. Why aren’t mom’s eight specialists it always has, and the public denies furaware of each other’s existence? Why is ther tax increases, the Orszag payment

board will then start to ration or prohibit access to medical resources that it decides aren’t worth the expense. These political choices will be unpopular and even deadly, which is why Mr. Orszag worked so hard to insulate his payment board from oversight or accountability. Congress can only reject the board’s decisions if it substitutes something else that reduces costs by as much. More amazing still, only a minority of the board can be “directly involved” in the provision of health care. This latter provision is supposed to prevent the alleged conflicts of interest that come from knowing something about how health care is provided in the real world. What it reveals instead is that this board isn’t about medical quality at all. It is purely a balance-sheet exercise to make sure that the Orszag-Obama agenda of top-down health care can’t be undone by something as crude as democratic consent. And they claim that Paul Ryan’s proposal is “radical”?
i i i

What the debate over Mr. Ryan’s reform is revealing is that the real healthcare choice, and the real choice this November, is about the role of government. The Orszags of the world ultimately have what President Obama would call an “ideological” preference for coercion over individual choice. They want to impose the unilateral decisions of the state over those of millions of Americans. The larger irony is that ObamaCare’s architects claim that all of this will lead to more equity in the delivery of medical services, but in practice it will have the opposite effect. Americans of even middle-class means will not tolerate being told they cannot spend their own money to improve their own health or save the lives of their loved ones, so under pricecontrolled ObamaCare we will quickly see the emergence of a two- or even threetier system outside the reach of government. The affluent will get their own special level of service. Certainly Mr. Orszag, a vice chairman of corporate and investment banking at Citigroup, won’t be getting treatment at some municipal hospital. The Cheesecake Factory is a great place to eat but you probably wouldn’t want to be operated on there—especially if it’s run by the government.

The Right Man

Notable & Quotable
Astronaut Neil Armstrong, who died on Saturday at age 82, speaking about the 1969 Apollo 11 mission to the moon:

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ven in the current age of constant at the familiar milky globe in the darkelectronic wizardry, Neil Arm- ness and marveled in pride and awe. strong’s 1969 walk on the moon reAs the first human to walk on the mains a moment of incomparable magic. moon, Neil Armstrong bore a heavy load. For those who saw it, not on YouTube but One shudders to think what the pressure as it happened, the moon him would be like now ment will last a lifetime. in our celebritized age. Humble Neil Technology and engiwas the right Armstrong was the Armstronglarger-than-life neering science were not man for a then the lingua franca of experience. He was the perfect choice. daily life that they are consummate professional now. People watched the engineer, a self-described moonwalk on bulky television sets, often geek, who always said that his achievein black and white. No matter. Seeing ment was the product of many minds Neil Armstrong in his puffy white astro- and strong wills. He was instinctively naut’s suit descend from the lunar vehi- self-effacing, as his recollections nearby cle to touch his foot to the moon’s sur- show. If he receded from public view afface was transcendent. Uncounted ter Apollo 11, it was to minimize any numbers of Americans and earthlings chance that history’s focus would shift elsewhere went outside later, stared up away from NASA’s achievement on that

mission. Whether the United States and NASA should again attempt similar feats in space is a subject for another time. Suffice to say that Neil Armstrong and his Apollo 11 colleagues, Buzz Aldrin and Michael Collins, had the great fortune to be part of one of those rare, exhilarating episodes of teamwork and genius available to the few but an inspiration to all. This is a moment when some are inclined to say, “They don’t make them like that anymore.” But they do still make them like that, if only we have the wit to find and support them. Neil Armstrong’s death at age 82 is an occasion to elevate again in the public eye the personal values that he represented—excellence, fortitude, worthy dreams and personal humility.

I was certainly aware that this was a culmination of the work of 300,000 or 400,000 people over a decade and that the nation’s hopes and outward appearance largely rested on how the results came out. With those pressures, it seemed the most important thing to do was focus on our job as best we were able to. . . . [E]very guy in the project, every guy at the bench building something, every assembler, every inspector, every guy that’s setting up the tests, cranking the torque wrench, and so on, is saying...“If anything goes wrong here, it’s not going to be my fault, because my part is going to be better than I have to make it.” And when you have hundreds of thousands of people all doing their job a little better than they have to, you get an improvement in performance. And that’s the only reason we could have pulled this whole thing off. . . .

10 | Tuesday, August 28, 2012

THE WALL STREET JOURNAL.

OPINION

America Doesn’t Need a Pivot to Asia
BY MICHAEL AUSLIN It is time to bury the Obama administration’s pivot to Asia. This reallocation of military and diplomatic resources was supposed to guarantee stability in a region seeking to balance China’s rise. In reality, this strategic shift is less than it appears. It won’t solve Asia’s problems and may even add to the region’s uncertainty by over-promising and under-delivering. facto hegemon of Asia, or simply to reassure nervous nations about China’s rise? The reality is that not much will change in America’s actions. The pivot says nothing about taking on new commitments, for example toward the Association of Southeast Asian Nations or to countries with whom America does not currently have formal alliances. Just as importantly, Washington has made clear in recent months that it will not take sides in the territorial disputes that have roiled the East and South China Seas, even when allies like Tokyo and Manila are involved. Further evidence for this reality comes from the resource constraints imposed on this grand project. The Obama administration is trying to do it on the cheap. Pivot funding is in danger from sequestration—forced budget cuts resulting from larger budget politicking in Washington—that, if allowed to proceed, will cut another $500 billion from a defense budget already reduced by $900 billion since 2009. The administration claims that America’s military presence in Asia will not be affected by these budget cuts. If that is so, then U.S. military posture in the rest of the world will be cut back. More likely, any buildup will be difficult to sustain. The shifting of more planes and ships to the Pacific will soon slow down, as the size of the Air Force and Navy shrink, and as other world problems such as Iran and Syria continue to dominate the attention of American policy to risk a crisis with China short of any overt attempt by Beijing to take over territory clearly controlled by other nations. Building up U.S. forces in Asia, were it even possible, would not change that political calculation. The current American military posture can be diversified to a few more countries, but essentially, Washington has had the right balance for the past several decades. While it would be a mistake to shrink the U.S. air and naval presence in Asia, all Washington could do is slightly increase it, and that will change nothing in the region. Moreover, there are few realistic options for new partners in Asia, especially ones such as Japan and Australia that can provide some level of regional security cooperation. That means America’s current grouping of allies and partners is right-sized for the political and security realities of the AsiaPacific for the foreseeable future. As long as Washington persists, however, in proclaiming that it has a new policy for Asia, it will have to answer uncomfortable questions about what it all means. Once their political conventions are done this month, both Governor Romney and President Obama should decide to speak softly and carry the same-sized stick as a warning to any who would unilaterally upend the delicate balance among Asian nations.

Reuters

The supposed strategic shift is adding uncertainty by over-promising and under-delivering.
Everything wrong with the pivot can be summed up by Four R’s: rhetoric; reality; resourcing; and raising expectations and then doubts. So far, the first and perhaps biggest problem with the idea of the pivot—or, as the Defense Department calls it, the rebalancing—is that it remains largely rhetorical, vague and aspirational. True, there are some laudable moves, such as basing U.S. Marines in northern Australia and agreeing to port new U.S. warships in Singapore. These, however, hardly add up to a breakthrough. The world still wonders what the purpose is: to contain China, to promote democracy, to make the United States the de

The U.S. has raised its allies’ hopes and then dashed them. Above, Philippine Foreign Secretary Albert del Rosario. makers. This, in turn, is raising doubts about the pivot in Asia, so soon after the rhetoric from Washington had raised expectations. Countries such as Vietnam and the Philippines led themselves to believe that the pivot would have concrete results, such as quickly increasing American presence in the region and perhaps even American support in their maritime territorial disputes with China. Both accordingly reached out to Washington, holding new military exercises or discussing greater security cooperation. Yet this enthusiasm makes it all the worse when those hopes turn out to be dashed by Washington’s failure to act. As one Philippines senator asked during his country’s standoff this spring with China over the Scarborough Shoal, what good is the alliance with the U.S. if America refuses to back up its partners in times of need? By appearing to make unrealistic promises, the Obama administration has created new diplomatic headaches for itself in managing the fall-out from its failure to deliver. What then is the point of the pivot? By not getting involved in maritime disputes, other than rhetorically, Washington is actually taking the most realistic approach possible. No administration, Republican or Democratic, is going

Mr. Auslin is a scholar at the American Enterprise Institute and a columnist for wsj.com. Follow him on Twitter @michaelauslin.

Welcome to Freshman Disorientation
BY RUTH R. WISSE Four years ago at the beginning of Harvard’s school term, I was going over an assignment with a freshman when she confessed that she was feeling guilty—because she was working for the Obama campaign. I assumed she meant that her campaign work was taking too much time from her studies, but she corrected me: She was feeling guilty because she supported John McCain. So why, I asked, was she working for his opponent? She answered: “Because I wanted so badly to get along with my roommates and with everyone else.” Few of us survive adolescence without some conflict of the kind experienced by this freshman and dramatized by Tom Wolfe in his novel “I Am Charlotte Simmons” (2004): the conflict between the demands of new surroundings and the moral beliefs and values one brings from home. Every environment dispenses its conventional wisdom, and swimming against the current is always hard. But our freshman’s predicament was driven by an exaggerated impression of “everyone else.” In fact, student opinion at elite schools has lately been growing more varied. Conservatives in particular have become more outspoken. Harvard’s Republican Club includes libertarians, fiscal conservatives, and social conservatives, who sometimes find common cause and sometimes don’t. The Right to Life caucus is a natural ally, though not all Republicans support its views on abortion. Then there is the True Love Revolution, a Harvard group formed in 2006 “to give students a moral and political option in issues relating to sex and marriage.” Its members believe that liberationist attitudes toward sex, sexuality, and relationships damage students’ health and well-being. students. Nowadays, the pressure for conformism comes more from the faculty, which tips Democratic like the Titanic in its final throes. Programs that once upheld the value if not the practice of intellectual diversity tend to function more like unions, trying to keep their membership in line. Some professors make a habit of insulting Republican candidates and conservative ideas with the smirking assurance of talk-show hosts, unaware that their laugh lines reap from some students the contempt that they sow. The increased political conformism at universities may be traced in part to the redefinition of diversity that accompanied the introduction of group preferences, aka “affirmative action.” Schools instituting this policy never acknowledged that it conflicted with competing commitments to equal consideration “irrespective of race, religion, or gender,” or that at least half the country questioned its wisdom. In part the policy has become a joke, with claimants to 1/32nd Cherokee heritage gaining preferential treatment as minority hires. What is not a joke is that the meaning of “diversity” has shifted from the intellectual to the racial-ethnic sphere, foreclosing discussion of certain subjects like affirmative action, gender differences and everything considered politically incorrect. Thus, the current Guide to the First Year at Harvard alerts incom-

Student opinion at elite U.S. schools is showing ‘diversity.’ The faculty is another matter.
At Yale, where the Party of the Right has been a conservative and libertarian redoubt since the 1950s, feisty undergraduates have founded a new group to promote “genuine intellectual diversity” in the face of excessive ideological uniformity. Named for one of Yale’s most famous mavericks, the William F. Buckley Jr. Program takes its motto from the mission statement of Buckley’s magazine, National Review, standing against “the conformity of the intellectual cliques,” and supporting “excellence (rather than ‘newness’)” and “honest intellectual combat.” In brief, political independence is alive and well, at least among

Corbis

More voices are getting heard at Harvard Yard (above). ing students to orientation programs in diversity designed to build connections within and across “nationality, race, ethnicity, gender, sexual orientation, class, physical ability, and religion.” Characteristically and tellingly absent from the list is political or intellectual diversity. Those who established higher education in this country knew that constitutional democracy was not biologically transmitted, but would have to be painstakingly nurtured in every new cohort of students. When schools dropped requirements for compulsory attendance at religious services and subjected all certainties to critical scrutiny, the schools may have assumed that faculty would find more creative ways of teaching the foundational texts and of rehearsing the debates inspired by those texts. Conservative students—and not they alone—long for exposure to the ideational diversity of Jefferson and Hamilton, Jesus and the Grand Inquisitor, Marx and Hayek, liberal and conservative. They want a campus where a professor who says he votes Republican isn’t considered either courageous or crazy. The pity is that, so far, students who desire such a campus will have to work for its transformation on their own.

Ms. Wisse, a professor of Yiddish and comparative literature at Harvard, is the author of “Jews and Power” (Schocken, 2007).

THE WALL STREET JOURNAL.

Tuesday, August 28, 2012 | 11

OPINION

Apple’s Lawsuit Sent a Message to Google
BY RICH KARLGAARD Last week Apple made headlines twice. On Monday it broke the world record for shareholder value. Apple’s $623.5 billion market cap beat Microsoft’s record from tech’s notorious bubble era. (Microsoft needed a price-toearnings ratio of 72 in 1999 to set the record. Apple’s ratio is a modest 16.) Then on Friday, Apple won a $1.05 billion patent-infringement judgment against Samsung, the Korean electronics giant and the maker of the Galaxy line of smartphones that stirred Apple’s ire. droid software? Apple sees Google as its chief competitor—this is no secret. Steve Jobs so hated Google’s Android that, even as he struggled with cancer, he told biographer Walter Isaacson: “Google . . . ripped off the iPhone, wholesale ripped us off. I will spend my last dying breath if I need to, and I will spend every penny of Apple’s $40 billion in the bank, to right this wrong. I’m going to destroy Android, because it’s a stolen product. . . . I’m willing to go thermonuclear on this.” It is revealing that Jobs spent precious energy in such an outburst. As a longtime Silicon Valley observer, I believe the real story is not what it seems. The source of Jobsian rage was not his Google loathing, per se. It was fear that Apple might be “Microsofted” again. Some history: As many people know by now, Apple founder Steve Jobs and Macintosh computer designer Bill Atkinson drew heavily from the work of Xerox’s Palo Alto Research Center. In the 1970s, PARC had developed a computer called Alto. The computer featured all kinds of new stuff, including a mouse and popup windows. Jobs visited PARC in 1979 and a light switched on. A day or two later, Jobs met with an industrial designer and ordered him to build a prototype computer with a mouse. Thus was born the Apple Macintosh, which made its debut in 1984. Did Apple steal from Xerox PARC or not? In the broadest sense, yes. The visit to PARC did more than inspire Steve Jobs. It sent him directly on a mission to pull a Microsoft and once again reduce Apple’s products to a pricey niche. To Jobs, Android looked like the new Windows. So why doesn’t Apple sue Google directly, instead of suing a Google hardware partner like Samsung? Politics and public relations, mainly. Apple knows that suing a foreign giant will go down a lot better than suing a Silicon Valley neighbor. Apple enjoys huge favor right now among customers, politicians and the public. Suing Google would divide Apple’s support and tarnish the company’s image. So Apple sued a foreign company to send a message to Google. This techno-Shakespearian story is entertaining but is bad for the phone-buying public. (Tablet patents were also part of the Apple-Samsung court case, but smartphones were at the heart of the lawsuit.) As Samsung contemplates filing an appeal, it appears that smartphone-makers may begin redesigning their products to avoid crossing swords with Apple. Last week I bought a Samsung Galaxy Note phone. It is a marvel of machinery. It is larger, slimmer and lighter than Apple’s iPhone. The Samsung Note’s screen is so large that people who see it think I must have acquired an early version of the mini-iPad that Apple is expected to release soon. The Note takes the iPhone hardware design and makes it significantly better. Funny. That’s just what Apple did with the Xerox Alto.

To Steve Jobs, Android stirred unpleasant memories of Microsoft Windows.
Congratulations, Apple—twice. But these two coinciding events should give us pause. One, how badly has Apple been hurt by copycats if it has become the richest company on earth? Do we want a patent system in which the strongest sue everyone else? Is this good for innovation? Two, Apple lost the jury trial, in a federal court in San Jose, Calif., on most of its hardware claims, such as a ridiculous patent on curved glass for phone surface design. Apple won mostly on software, such as “pinch and stretch,” a nifty design trick Apple introduced in 2007 with its first iPhone. So why did Apple sue Samsung, the Galaxy hardware manufacturer, and not Google, maker of the phone’s An-

AFP/Getty Images

Apple’s iPhone (left) and Samsung Electronic’s Galaxy S mobile phone. build something very much like the Alto. But Jobs being Jobs, he immediately had ideas for improvement. The mouse should have one button, not three. It should work on any surface. It should be cheap to manufacture. The pop-up windows should look this way, not that way. Jobs swiped the idea and made it better. But Macintosh was only modestly successful in the market, and Jobs was asked to leave Apple in 1985. Meanwhile, his baby-boomer rival, Bill Gates, had introduced Microsoft Windows software in 1983. It wasn’t pretty, and it didn’t work well until version three in 1986, two years after the Macintosh’s arrival. But it incorporated several Apple features, and the personal-computer industry built around Windows software soon boomed and grew to immense size. Microsoft PCs crushed the Macintosh market share, which fell to 3% by the late 1990s. In the mind of Steve Jobs, I believe, the story was this: Even if he did copy the idea of the Xerox Alto, he added so much value that the copying barely amounted to technological petty larceny; Microsoft, by contrast, just ripped off Apple without improving it. What Bill Gates improved, of course, was not Apple’s software but the entire business model for personal computing. That’s how Microsoft came to dominate personal computing for a generation. That’s how Microsoft beat the market-cap world record and held it until Apple topped it nearly 13 years later. Jobs deeply feared a replay of this business-model history. He feared that Google was going to

Mr. Karlgaard is the publisher of Forbes.

A GOP Opportunity on Immigration
BY JON HUNTSMAN Americans are facing the most difficult economic headwinds in a generation. Future economic growth will depend in large part on our ability to maintain an edge in human capital. This means we must focus on immigration as a key economic driver rather than solely as a security issue. Immigration contributes to a healthier demographic profile— bringing younger workers to an aging population. Most important, immigrants add to America’s competitive strength in the global economy. According to a 2011 Kauffman Foundation study, an immigrant is twice as likely to start a company as an American born here. A quarter of all American hightechnology firms founded between 1995 and 2005 have had at least one immigrant founder, and 42% of the individuals who earn doctorates in science and engineering from our universities were born overseas. Given these achievements, imagine the opportunity costs of the 1907 Gentleman’s Agreement, which restricted Japanese immigration; the 1882 Chinese Exclusion Act; and the 1924 Immigration Act, which effectively ended mass Eastern and Southern European immigration. Those laws deprived the United States of millions of talented and driven citizens. We should not be making the same error today that past generations have made. Yet we are. Rather than lead and work with Congress to deliver permanent solutions, President Obama chose to use an executive order as a policy Band-Aid for young people caught in our immigration laws. This was political theater. America deserves better. Republicans meeting in Tampa this week should offer a clear alternative. The party should champion a plank that will enhance economic growth by embracing immigrants. The situation has changed radically from 2007, when President George W. Bush’s effort to reform our immigration laws collapsed in Congress. People aren’t crossing our borders—legally or illegally—as they once were, because there are fewer jobs available. According to the Pew Hispanic Center, Mexican immigration may have actually reversed in 2011, with outflows surpassing immigration to the U.S. While lack of opportunity is reducing the low-skilled illegal population, those who are already here need to be brought out of the shadows of a nation they are already a part of. Most important, the debate must move away from illegal immigration toward immigration as a cornerstone of economic vitality. When abroad, I’ve always been struck that the American attribute most envied by our competitors is our ability to successfully assimilate generations passively opening our arms to immigrants to actively seeking them. Let’s start by making sure that graduates of elite foreign universities who receive degrees in mathematics, science or engineering can immigrate to the U.S. if they so choose. Every U.S. Embassy should work with the private sector to continuously identify and recruit local talent. Such initiatives won’t only bring talent here—they will allow us to deny it to our competitors. Immigrants also create backward linkages to their native lands, facilitating investment abroad and attracting foreign direct investment to the U.S. Additional foreign capital could be attracted to our shores by expanding the EB-5 program, which provides green cards for immigrants who invest a set amount in the U.S. or create jobs there— and by reforming our broken and backlogged visa system at our consulates abroad to increase travel and tourism opportunities. For far too long we as a nation have tolerated an ugly nativist strain that dresses itself up with legitimate concerns about security and the breakdown of the rule of law. This is nothing new. It wasn’t long ago that “Irish need not apply” signs dotted Boston, and laws in some places banned speaking German. But we would be fools not to learn from our history, since our competitors—like Singapore, which is working to attract immigrants—surely are. Republican leaders at the Tampa convention have a real opening through the platform committee to project immigration reform as central to a 21st century economic vision. This isn’t just good policy. It’s also good politics.

Party leaders in Tampa have a chance to fashion a platform plank that will spur economic growth.
of immigrants and their dreams into our nation’s fabric. And they increasingly understand the economic stakes. World-wide competition for brainpower is heating up, and failure to reform our immigration system now will stunt America’s future growth prospects, unless the country embraces reform. Work-based immigration programs like the H-1B visa, which is a temporary program for workers with special skill sets, have to be expanded. Foreign graduates of American universities simply have to be given the opportunity to pursue U.S. citizenship. Beyond that, we must move from

Mr. Huntsman is a former governor of Utah and was a Huntsman Corporation executive and U.S. ambassador to China and Singapore.

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12 | Tuesday, August 28, 2012

THE WALL STREET JOURNAL.

IN DEPTH

For Spain’s Unemployed, Time Equals Bank Money
BY MATT MOFFETT AND ILAN BRAT
Valladolid, Spain

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ven though she’s one of millions of young, unemployed Spaniards, 22year-old Silvia Martín takes comfort in knowing that her bank is still standing behind her. It isn’t a lending institution, but rather a time bank whose nearly 400 members barter their services by the hour. Ms. Martín, who doesn’t own a car and can’t afford taxis, has relied on other timebank members to give her lifts around town for her odd jobs and errands, as well as to help with house repairs. In return, she has cared for members’ elderly relatives, organized children’s parties and even hauled boxes for a member moving to a new house. The time bank not only saves her cash, she says, but also lifts her spirits by making her feel “part of a community that’s taking some positive action during hard times.” As Europe’s leaders struggle with a fiveyear-old economic crunch that has saddled Spain with the industrialized world’s highest jobless rate, young Spaniards are increasingly embracing such bottom-up selfhelp initiatives to cope. The diverse measures—some commonly associated with rural or disaster-zone economies—supplement a public safety net that is fraying under government austerity programs. Besides time banks, they include barter markets springing up in barrios, local currencies designed to spur the flagging retail economy, and charity networks that repurpose discarded goods. An environmental group recently launched Huertos Compartidos, or Shared Gardens, that links up owners of vacant land with those willing to plant vegetables in them and share the harvest. The growth of time banks revives a concept pioneered by 19th-century anarchists and socialists in the U.S. and Europe, who wanted to test their philosophy that prices of goods and services should more closely reflect the labor involved in producing

them. The number of such banks in Spain— some run by neighborhood associations, others by local governments—has nearly doubled to 291 over the past two years, according to a survey by Julio Gisbert, a banker who runs a website called Vivir Sin Empleo, or Living Without Work, that tracks mutual-aid initiatives. Some economists worry that the rise of such informal systems of economic exchange is pushing more of Spain’s economy underground—out of the view of regulators and tax collectors, and effectively sending the country back in time developmentally. “It’s a step backward not only for a euro country, but also for a developed country,” says José García Montalvo, an economics professor at the University of Pompeu Fabra in Barcelona. Banks and social currencies, he says, can backfire on the broader economy since the income received from such arrangements often goes undeclared, therefore depriving the government of tax revenue. Social currencies and time banks also preclude taking on debt, adds Mr. García Montalvo, which in moderate levels can help people start businesses and access beneficial goods and services that they can’t afford upfront. Others, though, say the measures represent a significant stabilizing force in society. For “people who can’t find work, these kinds of possibilities of exchanges and mutual help can help make bearable a situation that otherwise would be unsustainable,” says José Luis ?lvarez Arce, director of the economics department at the University of Navarra. Similar efforts are also emerging in Southern Europe’s other troubled economies. In Greece, for example, hundreds of people in one town use a currency called the TEM, which stands for a local alternative unit. Time banks in Modena, Italy, and elsewhere in the country have mobilized to help people affected by earthquakes there earlier this year. Spain’s economy has been in dire shape since a real-estate bubble burst in 2008. Unemployment hit a record of nearly 25% in the second quarter, and

Excess fruits and vegetables grown in a shared garden are sold for ecos, a currency that was launched by Eduard Folch, top, a Web page designer in the Catalonia region, and some of his friends.

Edu Bayer for The Wall Street Journal (2)

Time on Their Hands
Skyrocketing unemployment among Spain’s young workers has helped fuel the growth of time banks and other mutual-aid organizations. Unemployment rate for 25- to 34-year-olds
30% 0 5 25 0 20 5 15 0 10
Sources: Spain's National Statistics Institute; Vivir Sin Empleo The Wall Street Journal

2Q 2012

27.3%

Number of time banks in Spain
300 250 200 150 100 50 0 2010 '11

2012

291

5 0 2005 '06 '07 '08 '09 '10 '11 '12

'12

the government sees the economic contraction continuing into next year. Meanwhile, Spain’s public-assistance system has been battered by national and state budget cuts aimed at soothing financial markets. As jobless benefits run out for long-term unemployed, the percentage of out-of-work Spaniards receiving assistance has fallen to 65% from 78% in 2010. Last month, the national government announced the most severe budget austerity plan in the country’s modern history. The crisis has been an especially tough blow to people in their 20s and 30s, who came of age in a period of democracy and prosperity following the death of Spanish dictator Francisco Franco in 1975. They were the first Spaniards to enjoy the fruits of a strong welfare state that included universal health care, accessible higher education and generous worker protections, says Rodolfo Gutiérrez, a sociologist at the University of Oviedo. They watched their parents’ living standards rise dramatically, and entered the workforce in the late 1990s and early 2000s, when jobs were plentiful and credit and consumer goods readily obtainable, he says. Today, workers 16 to 24 face an astronomical 53.3% unemployment rate. For 25to 34-year-olds, the rate is 27%. It tapers off for older workers, who can be costly to lay off under Spanish labor law. Half of the young unemployed have been seeking work for at least a year, according to Spain’s national statistics bureau, and the few jobs that are available are often low-paying, temporary positions. The number of people in their 20s and early 30s who live with their parents began to tick up in the past 12 months after declining for years. “It’s not a lost generation, it’s a frustrated one,” says José Ortu?o, a 35-yearold film writer and director. He recently made an animated Web series called

“Treinta?eros,” or Thirtysomethings, featuring a fast-food worker, Pedro, with four college degrees who represents a generation “living off their parents until they can afford to live off their children,” Mr. Ortu?o says. Amid flagging faith in efforts to shore up the euro, Spain is witnessing a surge in local currencies. “It’s increasingly hard for anyone in my generation to have much confidence in the euro or the authorities controlling it,” says Eduard Folch, 28, a Web page designer in the Catalonia region. A couple of months ago, he and some friends decided to launch their own currency, the eco. Desperate for money of any kind, a score of businesses and two town governments in the area have agreed to accept the eco, which is exchangeable through checks, electronic payments and even a smartphone app. Spaniards are also bartering goods—say, books or furniture in exchange for fresh produce—at markets that are being organized in seemingly every neighborhood. In the Catalonia region alone, 60 barter markets have been held during the first seven months of this year, three times as many as there were during all of 2007, according to Intercanvis.net, a website tracking the barter economy. A growing number of Spain’s young people are visiting websites like No lo Tiro, I Won’t Throw it Out, a three-year-old site similar to Freecycle that connects people who want to give an item away with those who need it. About 6,000 to 10,000 items a month—everything from automobiles to mother’s milk—change hands on the site, whose target audience is unemployed women in their 30s, says Daniel Remeseiro, 39, the site’s founder. “I think the model of the welfare state has reached its limit, and it’s up to individual members of society to pull our chestnuts out of the fire,” says Laia Serrano, 38,

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Tuesday, August 28, 2012 | 13

IN DEPTH

Edu Bayer for The Wall Street Journal

Mr. Folch, left, and Israel Calvache work in a shared garden near Barcelona. Members of the group are primarily growing food for themselves, but they also plan to sell their excess harvest . an economist who in September 2011 created a nonprofit organization called BarcelonActua, Barcelona Acts, which connects those in need with people who can donate a good or service. Ms. Serrano says she was moved to action during Christmas of 2010 while listening to a radio program in which an unknown good Samaritan called in to invite down-on-their-luck listeners to share the holidays at her house. Spaniards on tight budgets are also tapping online resources like Sindinero, Without Money, a site whose estimated 10,000 daily readers learn tips like how to make a mosquito trap out of a soft-drink bottle, or where there are public offices offering free Wi-Fi and air conditioning. Of course, even the architects of these self-help actions recognize that they won’t solve the fundamental problems of the euro or bring long-term stability to the Spanish economy. “We are inside of a pressure cooker, and all we can do is let some steam off so it doesn’t explode,” says Francisco Romero, head of the municipal employment office in the town Totana, which has launched an urban gardening project, a barter market and a local currency to help its jobless youth. Carlos Bravo, a 35-year-old information technician who helped launched a small bank in central Madrid this year, says time banks have a different sort of value: helping urban Spaniards rekindle a sense of closeness among neighbors that facilitates asking for favors and other forms of mutual assistance. “They’re people you can count on,” he says. “And in this time of economic crisis, for people who lack the resources to get things on their own, they know there are people here to give a helping hand.” The Valladolid Time Bank, started by the city government just before the crisis started, has attracted more and younger members with the crumbling of Spain’s economy. The new unemployed appreciate the bank’s egalitarian ethos, says 32-yearold administrator Juan Manuel Primo. “Everyone’s hour has the same value here,” he says: An hour’s labor by a seamstress is worth as much as that of a lawyer. Members write one another invoices for services rendered. Every month, Mr. Primo enters the invoice data into his computer to track how many hours each member has given and taken. He doesn’t allow imbalances greater than 20 hours in either direction. “Having a network of support like this is really important at a time when you’re vulnerable,” says Alessandra Melis, 30, who recently lost her housekeeping job after her employers were themselves laid off. She has been using the bank to get rides for her errands around town, in exchange for offering cooking lessons and dog walking services. When a hair stylist who belonged to the bank had to shut down his slumping salon not long ago, he was able to count on meals and other necessities from members in return for cuts. On a recent morning in the town library, bank member Cristina Altable, 38, was teaching English to Camila Gil, 17, whose mother pays for the lessons by doing ironing and cleaning for other members. In return, Ms. Altable has gotten Pilates classes, and is now having a graphic designer in the bank jazz up her résumé. “In this economy, the résumé has to be perfect,” says Ms. Altable, who has been struggling to re-enter the job market after leaving an administrative job a few years ago to have a baby. Ms. Altable, who has degrees in English and commerce, says she hopes a more polished résumé does the trick. After repeated rebuffs, she says she’d even consider working at McDonald’s. Ms. Martín, the unemployed 22-year-old, says she has struggled to find work in the career she studied for, caring for the physically incapacitated, and has had to settle for temporary jobs. She adds that it is dispiriting seeing her friends with degrees emigrating or working at very menial jobs. But she sees hope in projects like the time bank and thinks they are the wave of the future in Spain. “There has to be a change in the mentality for there to be a change in the country,” she says. “We can’t continue to spend resources we don’t have. We have to learn to live with less.”

Eco Friendly>>

Scan this code to see a video about the Eco and other alternative currencies or watch online and see more photos at WSJ.com/World.

Spain’s 2011 Economy Weaker Than Thought, Hurting Recovery Plan
BY ILAN BRAT MADRID—Spain’s economy was weaker than initially thought last year, the national statistics bureau said Monday, putting the government further behind in its task of engendering a jobs recovery even as it seeks to cut its 2012 budget deficit sharply. The euro zone’s fourth-largest economy grew 0.4% last year, compared with an earlier estimate of 0.7%, Spain’s National Statistics Institute said, following a periodic review that incorporated some information from surveys and other data that were previously unavailable. A spokesman for Spain’s Budget Ministry said the revision is too small to affect the country’s estimate of its 2011 budget deficit, which the latest measure puts at 8.9% of gross domestic product. It is a bad sign for Spain, however, as the government of Prime Minister Mariano Rajoy seeks to impose more than 100 billion ($125 billion) of spending cuts and tax increases over the next two years to narrow its budget gap, which many economists fear may deepen the economic contraction. Madrid had been counting on increasing exports to help drive growth and cut its budget deficit to 6.3% of GDP this year. But the statistics agency said Monday that both internal and external demand were lower than earlier estimates, crimping economic activity in 2011. Households tightened their consumption, and investment fell more than previously estimated, the agency said. Household consumption fell 1%, versus a previous estimate of 0.1% in 2011. Overall, consumption fell 0.8% instead of 0.7%. Meanwhile, exports grew 7.6% instead of the earlier 9%. Amid the lower growth, tax revenue fell slightly in 2011, hurting efforts to meet budget-deficit targets agreed to with the European Union. “Spain’s great problem is job creation,” said Juan Ignacio Sanz, a professor at the ESADE Business School in Barcelona. Spain’s economy typically needs to grow at least 2% for the net number of jobs to increase, he added. With the revised figure, “the road ahead is longer.”

14 | Tuesday, August 28, 2012

THE WALL STREET JOURNAL.

FROM PAGE ONE

Failed Takeover Dents Strategy
Continued from first page have softened on evidence China’s economy is slowing. Rival producers such as BHP Billiton Ltd. and Rio Tinto in recent months have closed loss-incurring mines or deferred new projects because coal prices have fallen so far and there is little sign demand is picking up. Underscoring that, shares in Whitehaven Coal haven’t traded higher than A$4.53 since Whitehaven disclosed Mr. Tinkler’s interest on June 13, even after its board later said the mining magnate’s Tinkler Group was proposing to pay A$5.20 a share for control; Mr. Tinkler never made a formal bid. The market was also highly skeptical about Mr. Tinkler’s ability to finance an acquisition on the scale of Whitehaven. Mr. Tinkler, who didn’t return calls seeking comment, would have needed to raise as much as A$4 billion in debt and more than A$1 billion in equity to pay for the acquisition. Although some Whitehaven shareholders as well as lenders UBS, Barclays and J.P. Morgan Chase lined up to help fund any bid, their support was conditional on due diligence being completed satisfactorily. After a month of looking at Whitehaven’s books, Mr. Tinkler informed Whitehaven on Friday that a formal bid at A$5.20 a share wouldn’t be forthcoming. Mr. Tinkler, who races supercars as a hobby and whose sporting interests include a horse-racing stable and Australian rugby league team Newcastle Knights, is paying the cost of his failed takeover campaign. Shares in Whitehaven plunged 11% Friday to a near three-year low after the takeover talks collapsed, reducing the value of Mr. Tinkler’s 22% interest by A$88 million. The stock recovered about half of those losses on Monday. Merrill Lynch analyst Peter O’Connor said a concern for investors is whether Mr. Tinkler plans to hold on to his stake. This uncertainty will weigh on Whitehaven’s shares for some time to come and could further hit Mr. Tinkler in the pocket should he decide to sell.

Mining magnate Nathan Tinkler, left, and former Knights player Paul Harragon watch the Newcastle Knights, a member of the Australian Rugby League, last year. Mr. Tinkler is one of Australia’s highest-profile entrepreneurs.

Yuan at Risk of Its First Down Year Against the Dollar
Continued from first page Générale in Hong Kong. In the past few weeks, the offshore forwards market in Hong Kong has signaled expectations that the yuan will fall 1.4% in a year, rather than the 0.9% decline expected in early July. These derivatives, which aren’t traded on an exchange, are used by exporters and speculators to bet on where the currency will trade. Investors betting on a fall in the yuan see just a modest decline and don’t believe the shift will affect the broad, long-term trend of the yuan becoming a global currency. But the new bearishness comes after overwhelming bullishness in Hong Kong among Hong Kong banks and fund managers, both that the currency will gain and that efforts to expand the yuan’s use internationally will be a huge business opportunity for them. This month, Société Générale lowered its outlook for the yuan because of slowing economic growth, saying it now expects the currency to end the year down 1% against the dollar, rather than its earlier prediction of an unchanged exchange rate. Other banks have also cut forecasts for the yuan. Citic Bank International Ltd., the Hong Kong unit of China Citic Bank Corp., this month said the currency would end the year unchanged, from a previous expectation of a 1% gain. To be sure, the drop so far this year is modest and could be reversed later in the year, especially if Chinese growth picks up from the 7.6% pace of the second quarter. The dollar has dropped slightly in the past month to 6.3558 yuan on Friday, from its 2012 high of 6.3896 yuan in late July. The yuan is flat this year against a broad range of currencies, according to data compiled by Crédit Agricole, and has fallen almost 1% against that basket since the start of July. A weaker yuan could help China keep growth strong, an issue that is particularly important for Beijing this year as it undergoes its once-a-decade leadership change. Still, a falling yuan could become an issue in the U.S. presidential election, where Republican candidate Mitt Romney has criticized President Barack Obama’s approach to China. The U.S. has consistently accused China of keeping the yuan undervalued, which boosts Chinese exports by making them cheaper for U.S. consumers. The yuan remains tightly controlled by Beijing, which sets the rate every day. In April, the government widened the band in which the yuan could trade each day to 1% on either side of the official rate, from 0.5%. That shift, part of the government’s slow-motion effort to liberalize its currency, gave investors slightly more influence over the value of the currency. New York-based Bienville Capital Management, which has approximately $300 million in assets under management, is using options to bet against the currency and believes a declining yuan will have an impact beyond China. “Our concern is that turmoil in China resulting in a lower [yuan] would have a considerable deflationary impact to the global economy,” said Cullen Thompson, Bienville Capital’s chief investment officer. He is using derivatives that stand to gain if volatility rises even without a significant shift in the yuan’s value against the dollar. Should the yuan also fall, “the position could be immensely profitable,” Mr. Thompson said. In another sign that speculative interest in the yuan could be waning, growth in yuan deposits held in Hong Kong has tailed off, after reaching a peak in November. In the last couple of months, local deposits have stabilized after five months of successive declines. The falling expectations for yuan gains are also hurting the outlook for the nascent yuan-denominated bond market, known as “dim sum” debt. When the market for these bonds took off in 2011, investors snapped them up for the expected currency gains, rather than for the interest rate on the bonds. The demand was so strong that that some brokerages sold the bonds through their foreign exchange and interestrates desks, instead of selling them through the credit desk. In the early days of the dim sum market, “there was too much emphasis on [foreign-exchange] appreciation and not enough focus on the credit quality of the names,” said Suanjin Tan, Asian fixed-income portfolio manager in the Singapore office of BlackRock. The giant money manager had $1.27 trillion of fixedincome assets under management globally as of June.

Getty Images

Maneuvered Money
How many yuan one U.S. dollar buys
6.40 6.38 6.36 6.34 6.32 6.30 6.28 2012 Stronger YUAN Weaker

Source: WSJ Market Data Group The Wall Street Journal

Yields were kept low as investor expectations for a stronger yuan outweighed concerns about the credit quality of some issuers. With a more gloomy forecast for the yuan, investors are now demanding a higher yield. Yields on high-yield, or “junk”, debt and bonds not classified by ratings firms have risen from just over 3% at the beginning of 2011 to 6.3% at the end of July. —Fiona Law contributed to this article.

Samsung’s Shares Drop 7.5% as Investors Fear Trouble From Second Case
Continued from first page month. Mark Newman, an analyst at Bernstein Research in Hong Kong, wrote in a research note that the Galaxy S III might have violated two of the Apple patents that jurors last week said Samsung had infringed on with older products. When Samsung unveiled the Galaxy S III in May, executives said features that Apple had identified in its lawsuits as problem areas had been excluded from the phone. In a six-paragraph memo sent to employees Monday, Samsung repeated that it was disappointed with Friday’s decision. “We trust that the consumers and the market will side with those who prioritize innovation over litigation, and we will prove this beyond doubt,” Samsung said. The memo was the first the company has sent to employees since the legal battle with Apple began 16 months ago. Smartphones have driven much of the sales and profit growth at the world’s largest technology company for the last two years, so there is much at stake for Samsung. Smartphone results have been so strong this year that Samsung turned in record quarterly earnings despite downturns in the company’s chip and display businesses. Most of that growth has been tied to products using the Google Inc. Android operating software that is at the heart of Apple’s patent-infringement allegations. Samsung’s reliance on Android helped the Korean company overcome a late start in the smartphone market and to rise to become the world’s top seller of smartphones by volume. Samsung executives declined to comment on how they intend to maintain smartphone momentum. The company has said it would appeal Friday’s ruling. But even as the court cases wind on, Samsung may need to hedge its smartphone bet by producing a greater portion of its phones using Microsoft Corp.’s Windows operating system or Samsung’s own Bada system, analysts said. A significant transition away from Android would take time, however. Despite investors’ concerns, some analysts have noted that the Android-powered Galaxy S III doesn’t use the “bounce-back” animation that Apple patented, socalled because when a user scrolls beyond the edge of a photo, Web page or document, the item bounces back into place. The new phone also is considerably larger than and visually distinct from Apple’s iPhone. Tech bloggers have pointed out that the Galaxy S III is subtly hexagonal rather than rectangular. That has been seen as an attempt to avoid an Apple design patent, criticized by Samsung and others, on rectangular phones. “The Galaxy S III is the first phone that is very clearly different from iPhone,” said Chung Yun-ho, president of Veyond Partners, a telecommunications consulting firm in Seoul. “With the earlier Galaxy versions, you can see how the copying issue could be raised.” —Min Sun Lee contributed to this article.

As of 12 p.m. ET

Euro 1.2514 g 0.15%

Yen/US$ ?78.68 ? 0.03%

Yen/A$ ?81.71 g 0.20%

Oil 94.87 g 1.33%

Gold 1670.90 ? 0.07%

10-year Treasury ? 8/32 yield 1.652%

3-month Libor 0.42485

Hon Hai Affirms Commitment To Reaching a Deal With Sharp
BUSINESS & FINANCE 16

Apple Phone Technology Becomes Forbidden Fruit
HEARD ON THE STREET 28

Tuesday, August 28, 2012

THE WALL STREET JOURNAL.

asia.WSJ.com

Aozora, Japan Make Debt Deal
BY ALISON TUDOR HONG KONG—As governments continue to bail out banks around the world, the struggle of a small Japanese lender to repay the state for its rescue over a decade ago illustrates how long it can take for taxpayers to get their money back. Aozora Bank Ltd., majorityowned by New York-based investment firm Cerberus Capital Management LP, said on Monday it will take as much as another decade to repay public funds that were used to bail out its previous incarnation, Nippon Credit Bank, in the 1990s. Nippon Credit collapsed under a mountain of bad loans and was nationalized in 1998, during Japan’s so-called Lost Decade. It received a total of ?355 billion (US$4.5 billion) in public injections agreed on in 1998 and 2000, issuing preferred stock to the government in exchange. So far, it has repaid ?127.4 billion, less than half the total. Aozora said on Monday it will make an upfront payment to the government of ?22.7 billion and then pay it ?20.49 billion annually until 2022. The bank said it would speed up repayment of the total ?227.6 billion if possible. The repayment plan could pave the way for Aozora to merge with another bank, which might have otherwise been wary of being dragged into protracted negotiations with the state. No potential partners have emerged. The deal comes after the Europe Union agreed to recapitalize Spanish banks earlier this year and as governments look to recoup bailout funds from financial institutions as diverse as ING Groep NV and Royal

What Apple, Facebook Can Tell Us
[ Current Account ]
BY FRANCESCO GUERRERA Not paying attention to U.S. stocks recently? Perhaps the thrilling spectacle of the Olympics kept you away from your portfolio. Or the no-lessengrossing public split of Tom Cruise and Katie Holmes made you forget about your 401(k). Maybe it was the languid summer, William Shatner’s return as Priceline’s “negotiator” or the struggles of the Red Sox and Arsenal. Whatever the reason, here is a quick way to get reacquainted with recent stock-market history: Slide open your iPhone, check your Facebook page and you are done. That’s right. The last few months in the world of equities can be summed up in the opposing fortunes of Apple Inc. and Facebook Inc.. One is sitting atop the corporate world, having just been crowned the largest-ever U.S. company by market capitalization. (There is an asterisk, but more on that later.) The other is struggling with a share price that has nearly halved since a messy initial public offering in May. The gap between the values placed by investors on Apple and Facebook —around $621 billion and $42 billion, respectively—is large enough to fit the economy of South Africa. But the distance between the yin and the yang of the U.S. stock market is more telling than that and offers three insights into investors’ current thinking. First, pervasive uncertainty and ultralow interest rates are prompting the market to look at the long term. By ascribing such a large value to Apple, investors are betting on the company being alive and well for a long time. This isn’t just a gut reaction but a belief in Apple’s continued ability to generate profits. Low rates help this process by effectively reducing the value of money invested today—think of the meager interest you get from your bank— and increasing the importance of future returns. “What we are seeing with Apple’s rise and Facebook fall is a long-term story,” says Frank Partnoy, a professor of finance and law at the University of San Diego, whose latest book, “Wait,” extols the merits of thinking before acting. “People are looking at the two business models and Please turn to next page

Bloomberg News

The bailed-out lender will take as much as another decade to repay taxpayers. Above, a sign at Aozora’s headquarters. Bank of Scotland Group PLC. In one success story, the Federal Reserve Bank of New York this month sold the last of the toxic assets it acquired from the bailout of American International Group Inc, reaping $6.6 billion in profit. “There are no short-term fixes for banks,” Brian Prince, Aozora’s chief executive officer, said in an interview. “Just injecting capital doesn’t solve a bank’s problems. It may solve some temporary credit problems, but getting the bank back to a position where it can operate independently and profitably so that it can repay the government can take years.” Part of the reason Aozora has taken so long to repay Japanese taxpayers has been the gap between the bank’s share price, which closed at ?209 on Monday. The government has set a price target of ?489 a share, based on the amount it is owed, divided by the number of Aozora shares it owns. Early on, Aozora struggled to carve out a profitable niche for itself between Japan’s megabanks and the smaller banks that have a lock on local lending. Its share price remained stubbornly low. Because Aozora still owed public money, the government could have demanded a change in management if Aozora missed key financial targets for two years in a row. During the global financial crisis, in 2008, Aozora’s shares fell as low as ?66 each, due to its reliance on wholesale funding—banks had grown nervous about lending to one another—as well as losses related to its exposure to Lehman Brothers Holdings Inc., General Motors Corp. financing unit GMAC LLC, and Bernard Madoff’s Ponzi scheme. Since the crisis, under new management, Aozora has cut costs to a level making it among the most efficient of Japanese banks, according to analysts. It has refocused on domestic lending, boosted retail deposits and returned to profitability. In July, Aozora reported its 13th Please turn to next page

As China Cosco Holdings Co. prepares yet another earnings report awash in red, voices inside and outside are pushing China’s champion of the world’s shipping lanes to shore up its finances. By Joanne Chiu in Hong Kong and Colum Murphy in Shanghai

Shipper China Cosco Faces a Sea of Red
consecutive annual loss, after last year’s loss of 10.5 billion yuan ($1.65 billion), it also would risk being put on the Shanghai Stock Exchange’s “special treatment” list. That could limit the daily trading movement of Cosco’s shares to 5% from the standard 10%. If losses extend into a third year, the company automatically would be delisted. A senior Cosco executive said the company hopes to avoid the second year of losses through a “combination of efforts to improve capital quality, asset quality and production capability.” He said it was “premature” to comment further because plans haven’t been completed. Avoiding a loss for the year could be a tall order. Cosco on Wednesday is expected to report a deeper first-half loss than the 2.76 billion yuan loss logged for last year’s first half. The company last month cited the weak global economy and slowdown in trade. To avoid an overt state bailout, analysts said, the company needs to find additional capital from the

China Cosco
Net pro?t/loss, in billions of yuan
10 5 0 –5 –10 –15
Full year First half

Dry-bulk shipping capacity*

Number of ships
520 480 440 400 360

Deadweight tonnage, in millions
40 30 20 10 0

Cosco is in little danger of collapse. More than half its stock is controlled by the Chinese government, which sees the shipping company as a major part of a national effort to gain greater sway over vital global supply chains. Cosco also has a high public profile, thanks to its colorful chairman, Wei Jiafu, a former ship captain who likes to be called Captain Wei and once was held hostage by pirates. But industrywide woes and Cosco’s own ill-timed expansion have damaged its financial standing, limiting its ability to nurture new business and to order additional ships. Should Cosco report a second

2009

'10

'11

2007

'08

'09

'10

'11

Source: the company

*As of Dec. 31 The Wall Street Journal

markets or from asset sales. Cosco’s problems are part of a broader industry shakeout, oddly enough exacerbated by China’s rise as a global shipping power. The country recently knocked off Ger-

many to having the world’s thirdlargest by fleet capacity, after Japan and Greece. China now has about 10%, up from 6.3% in 2006. Though China’s companies long Please turn to page 18

16 | Tuesday, August 28, 2012

THE WALL STREET JOURNAL.

BUSINESS & FINANCE

Hon Hai Pushes for Sharp Deal
BY DAISUKE WAKABAYASHI TOKYO—As cash-strapped Sharp Corp. struggles to bolster its finances, the chairman of Taiwanese contract-manufacturing giant Hon Hai Precision Industry Co. said Monday he is committed to reaching an agreement to take a capital stake in the Japanese electronics firm. Speaking at a news conference for a Taiwanese business delegation visiting Japan, Hon Hai Chairman Terry Gou said the details of the agreement—such as the timing and the amount it plans to pay per share—still aren’t finalized. “Sharp and Hon Hai both need to push hard to make it work. We [Hon Hai] are also facing pressures in the market. We have to make this work,” Mr. Gou told reporters. He declined to discuss how much Hon Hai—better known as Foxconn—would pay for its planned stake in Sharp. Mr. Gou said a meeting with Sharp wouldn’t take place before Thursday, when he and the rest of the delegation are scheduled to go to Osaka, where Sharp is based. The delegation is scheduled to tour the Sakai plant jointly owned by Mr. Gou and Sharp. Sharp spokeswoman Miyuki Nakayama said the company plans to meet Mr. Gou this week, although per share for the same stake, it would raise significantly less money than the ?66.9 billion ($850 million) earmarked by the March agreement. A new agreement would also have to clear regulatory approval in Taiwan. Regulators said the original deal goes against the interests of Hon Hai investors. Sharp needs answers quickly as it is burning through cash. It posted a record loss of ?376 billion in the past fiscal year to March. Earlier this month, it deepened its loss estimate for the current fiscal year to ?250 billion from an earlier loss projection of ?30 billion. As global demand for liquid-crystal-display televisions slows, Sharp is dealing with a two-pronged dilemma. Its own TVs aren’t selling and orders are sluggish for the LCD panels it supplies to other TV manufacturers. “Japan’s consumer electronics industry is facing difficulties; Sharp is not the only one,” said Mr. Gou before unleashing a series of rhetorical questions about why the Japanese yen is so strong, why the country’s corporate taxes are so high and why product development among Japanese electronics manufacturers is so slow and focused on hardware. “These are not simple issues.”

Road to Payback
Aozora Bank's share price since its November 2006 IPO
t

?500 400 300 200 100

?489 per share: Amount Japan’s government wants to recoup

0 2006 ’07 ’08 ’09 ’10 ’11 ’12
Source: SIX-Telekurs via Factiva The Wall Street Journal

Bloomberg News

Hon Hai Chairman Terry Gou at a news conference in Tokyo on Monday. the time and location of a meeting haven’t been finalized. The two companies originally reached an agreement in March for Hon Hai to take a 9.9% stake in Sharp at ?550 ($6.99) per share. However, when Sharp’s stock plunged earlier this month to onethird of the agreement’s price, Mr. Gou said Sharp’s executives told him he could back away from the deal. Publicly, Sharp has continued to insist the original agreement remains in place, saying the two sides are negotiating to make the deal “more effective.” Mr. Gou’s presence in Japan this week is expected to clarify the situation, with both companies hoping to release a joint statement before the end of August. The investment is critical for Sharp. Not only does Sharp need the capital to support a weakened balance sheet, but a sign that Hon Hai will move forward with the investment will provide an important vote of confidence for the company’s banks, which are weighing whether to extend further support. If Sharp agrees to a lower price

Aozora, Japan, Make Debt Deal
Continued from previous page consecutive quarterly profit and said funding costs have come down. Still, its share price remained well below the government’s target. Until Monday’s deal, the bulk of the government’s preferred stock was due to convert into common equity at prices from ?450 to ?540, way above the market price and potentially causing massive dilution of other shareholders. The government would have gained a greater say over operations, but would have had no way to exit its holding without realizing a huge loss. Late last year, Aozora’s management, Cerberus and the Japanese government began talks to avoid gridlock on repayment. Now, the date of mandatory conversion of the government’s preferred shares will be deferred until 2022. At the same time, Aozora will also buy back 330 million shares, or about a fifth of the total issued, and boost its dividend to 40% of earnings, one of the highest ratios among Japanese banks, according to analysts. “Paying the government in incremental steps helps us to move our business forward while making it clear that our intention is to pay back the government,” said Aozora’s Mr. Prince. The plan has the implicit blessing of the government but is subject to the approval of shareholders. A vote is scheduled for an extraordinary meeting on Sept. 27. —Atsuko Fukase contributed to this article.

What Apple, Facebook Shares Can Tell Us
Continued from previous page saying: ‘Apple is going to be around and Facebook might or might not be around.’” If the thought of Facebook disappearing sounds preposterous, glance, if you will, at the scrap heap of once-hot technology companies— from Netscape Communications Inc. to Myspace (formerly owned by The Wall Street Journal’s parent company, News Corp.)—or the army of severely wounded firms such as Nokia Corp, Hewlett-Packard Co. and Research In Motion Ltd.. Apple could go the same way, but investors clearly don’t think so, for reasons including a top-notch brand, a strong patent position (as Samsung Electronics Co. just found out), its cash pile and its record of innovation and productivity. On average, Apple’s employees generate 64% more revenue than Facebook’s workers. The second message concerns the companies’ management teams, both led by rookie chief executives. The difference between Tim Cook and Mark Zuckerberg, however, is that the former is succeeding a legend while the latter has been hailed as a legend in the making. So far, the market has been unequivocal: Since Steve Jobs’s death, Apple’s shares have risen 78%. Since Mr. Zuckerberg became CEO of a public company, Facebook’s shares are down 49%. Jeffrey Sonnenfeld, a management professor at Yale, believes the pre-IPO hype surrounding Facebook may have clouded its executives’ judgement. “There was a grandiosity about the Facebook’s management team that was problematic,” he told me. Mr. Sonnenfeld, an expert on how companies and executives can bounce back from serious setbacks, believes Mr. Zuckerberg shouldn’t pull his hoodie over his eyes. “Going into denial mode would only get employees and investors more anxious,” he said. Facebook declined to comment. Apple didn’t respond to a request for comment. The third issue is whether Apple’s record value and Facebook’s stock plunge should be seen as “sell” and “buy” signs, respectively, as per Warren Buffett’s famous aphorism about being greedy when others are fearful and vice-versa. I would point to two sets of numbers. First, once inflation is taken into account, Apple is smaller than Microsoft Corp., General Electric Co. and two other tech giants at their peaks. Optimists argue that is because Apple has room to expand, while the pessimists counter that it underlines fears of a slowdown in growth once the products developed in Mr. Jobs’s “skunk works” run out. The other data point is the price/ earnings ratio: Apple is trading at less than 13 times next year’s estimated earnings, while Facebook is at around 30 times. Despite its reputation for “irrational exuberance” and short-termism, the market appears remarkably cool and long-sighted in judging the prospects of two era-defining technology giants. —Steven Russolillo contributed to this article Francesco Guerrera is The Wall Street Journal’s Money & Investing editor. Write to him at: currentaccount@wsj.com and follow him on Twitter: @guerreraf72. contributed to this article.

INDEX TO BUSINESSES AND PEOPLE
Businesses
This index of businesses mentioned in today’s issue of The Wall Street Journal is intended to include all significant reference to companies. First reference to the companies appears in bold face type in all articles except those on page one and the editorial pages.
Aluminum Corp. of China..........................21 American International Group Inc ................... 15 Aozora Bank Ltd...........15 Apple.1,15,20,21,22,23,28 Aston Resources Ltd......1 AT&T..............................22 Barclays.........................14 BHP Billiton Ltd ...... 14,17 Bienville Capital Management..............14 Billabong International 19 Bumi..............................17 Bumi Resources............17 Cameco Corp.................17 Cerberus Capital Management LP........15 China Construction Bank...........................20 China Cosco Holdings...15 China Development Bank...........................18 China Investment.........17 China Ocean Shipping (Group).......................18 China Shipping Container Lines...........................18 Dollar Thrifty Group.....20 Dongfeng Motor Corp .. 18 Essar Energy...................4 Estee Lauder Cos ........... 7 Facebook .................. 15,20 Ford Motor....................18 Geely Automobile Holdings.....................18 General Electric............16 General Motors........15,18 Google Inc......14,20,22,23 Guthy-Renker..................8 Hertz Global Holdings..20 Hewlett-Packard Co ..... 16 Hindalco Industries........4 Honda Motor Co...........18 Hon Hai Precision Industry ..................... 16 HTC Corp..................23,28 Huawei Technologies....23 Hudson City Bancorp....20 Hyundai Motor..............18 Infineon Technologies..20 Infosys .......................... 19 ING Groep NV...............15 Intel..........................22,23 International Business Machines....................20 Jindal Steel & Power ..... 4 J.P. Morgan Chase........14 Kay Jewelers ................ 19 Kenexa...........................20 Lehman Brothers Holdings.....................15 Lenovo Group................23 LG Electronics Inc.........23 LVMH...............................7 McDonald's ................... 13 Microsoft........14,16,22,23 Military Bank................21 MindTree.......................19 Morgan Stanley............20 Mosaid Technologies....23 M&T Bank.....................20 Nasdaq..........................20 National Electric...........18 Netscape Communications Inc..16 News Corp.....................16 Nissan Motor Co...........18 Nokia Corp ..... 16,20,22,23 PowerShares QQQ........20 PSA Peugeot Citro?n ... 18 PTT PCL.........................17 Recikitt Benckiser LLC...8 Research In Motion.16,23 Rio Tinto PLC..................1 Royal Bank of Scotland Group PLC..................15 Saigon Securities ......... 21 Sakari Resources Ltd...17 Samsung Electronics 1,16,20,21,22,23,28 Sharp Corp....................16 Sichuan Hanlong Group..........................18 Signet Jewelers Ltd.....19 Sinopec..........................21 Sisvel International......23 Spyker NV.....................18 STMicroelectronics.......20 Sundance Resources .... 18 Swire Properties.............4 Tata Consultancy Services Ltd...............19 Tata Power......................4 Tata Steel ....................... 4 Tiffany & Co.............19,20 Toll Holdings.................21 Toyota Motor Corp.......18 TPG................................19 UBS ............................... 14 Vehicle Sweden AB......18 Verizon Communications........22 Viewsonic Corp.............23 Vodafone Group............22 Volkswagen...................18 Vringo Inc......................23 Weiqiao Textile Co.......20 Whitehaven Coal Ltd......1 Wipro.............................19 Zale Corp.......................19 Zhejiang Youngman Passenger Car Group 18 Zhejiang Zhongjiang Holding Co ................. 20 ZTE................................23 Buffett, Warren............16 Cailloux, Jacques............6 Chandrasekaran, N. ...... 19 Chen Zuofu ................... 20 Chong, Wee-Khoon.........1 Chung Yun-ho ............... 14 Contreras, Jorge...........22 Cook, Tim.................16,22 Corr, John......................18 Draghi, Mario................21 Dunn, David .................. 22 Evans, Charles..............20 Feng Shouming.............18 Fisch, Alan....................22 Gisbert, Julio................12 Gitzel, Tim....................17 Gou, Terry.....................16 Hogan, Velvin ............... 22 Hong, Ken ..................... 23 Ilagan, Manuel..............22 Inman, Launa................19 Jakobsen, Steen...........20 Jeng, Aaron...................23 Jobs, Steve...................16 Jones, George...............18 Kloppers, Marius..........17 Koh, Lucy ...................... 22 Kowalski, Michael.........19 Kwangsukstith, Chitrapongse..............17 Leung, Johnson.............18 Lewis, Janet ................. 18 Lindzon, Howard...........22 Madoff, Bernard...........15 Merchant, Gordon.........19 Mulally, Alan.................18 Muller, Victor................18 Nakayama, Miyuki........16 Newman, Mark...14,23,28 O'Connor, Peter ............ 14 Pang Xiusheng..............20 Partnoy, Frank .............. 15 Primo, Juan Manuel.....13 Prince, Brian.................15 Reilly, Brian .................. 17 Remeseiro, Daniel........12 Romero, Francisco........13 Rothschild, Nat.............17 Russo, Bill.....................18 Sanz, Juan Ignacio ....... 13 Schapiro, Mary L..........20 Schoch, David ............... 18 Serrano, Laia.................12 Sonnenfeld, Jeffrey......16 Sosnick, Steve..............20 Srivastava, Dileep ........ 17 Tan, Suanjin..................14 Thompson, Cullen.........14 Tinkler, Nathan...............1 Tosti, Robert J..............22 Valle, Dean Dalla..........17 Wang, Wanli.................23 Wei Jiafu ...................... 15 White, Craig..................19 Wong Leung-sing ........... 4 Zeng Xiaozhao..............21 Zhu Hongbo .................. 20 Zuckerberg, Mark.........16

People
This index lists the names of businesspeople and government regulators who receive significant mention in Today’s Journal.
Altable, Cristina ........... 13 Bernanke, Ben..............21 Bravo, Carlos.................13

Corrections

Amplifications

Temple Restaurant Beijing’s phone number is +86 10 8400 2232. A Food & Drink article in the Weekend edition incorrectly listed it as +86 10 8200 2232.

THE WALL STREET JOURNAL.

Tuesday, August 28, 2012 | 17

BUSINESS & FINANCE

Bumi Resources Posts Loss for Half
BY EDHI PRANASIDHI AND ERIC BELLMAN JAKARTA, Indonesia—Coal miner PT Bumi Resources recorded a $322 million first-half loss, the latest sign that sliding commodity prices are catching up with producers across Asia. While Bumi said the losses mostly stemmed from derivative and foreignexchange transactions, it also has been hurt as thermal-coal prices have fallen with slowing demand in China and elsewhere. Increased U.S. coal exports also have weighed on prices. Bumi’s prices for thermal coal fell to $88.45 a ton during the half from $91.26 a ton a year earlier. Bumi, the country’s biggest coal miner, nevertheless forecast a price rebound by the fourth quarter, because winter boosts demand for the coal used in power plants. “When markets turn around, all these ‘below the line’ losses will once again turn into gains,” said Director Dileep Srivastava. Cash flow remained healthy and is likely to rise, he said. Bumi Resources, a subsidiary and its vast coal reserves are among the main assets held by the Londonlisted Bumi PLC, which is owned by European financier Nat Rothschild. While Bumi PLC owns 29% of Bumi Resources, disagreements about the Indonesian company’s management and its debt have caused tension within Bumi PLC’s board. Both companies’ shares have dropped sharply over the past 12 months amid concern that Bumi Resources’ debt burden was constraining profit. Bumi Resources needs to ramp up production to pay off a $1.3 billion loan from China Investment Corp., on which the miner pays 19% in annual interest. Bumi for two years has considered selling off stakes in some subsidiaries. But some analysts and investors are concerned that it could have trouble raising the money it needs. Standard & Poor’s this month lowered its rating on Bumi Resources’ debt. Other mining companies also

BHP to Sell Deposit
Sale of Undeveloped Uranium Find to Cameco to Fetch $430 Million
BY ROBB M. STEWART MELBOURNE, Australia—BHP Billiton Ltd. is selling one of Australia’s largest undeveloped uranium deposits as it seeks to conserve cash and adjusts its development plans amid a slump in commodity prices that has shaken the global mining industry. BHP, the world’s largest mining company by market value, said Monday it had agreed to sell its Yeelirrie deposit in Western Australia to Cameco Corp. for US$430 million, subject to regulatory and state government approval. The Melbourne-based company last week scrapped a roughly $30 billion plan to greatly expand its Olympic Dam copper-and-uranium mine in South Australia after construction costs had jumped and prices had fallen. It said it wouldn’t approve any new major projects until at least mid-2013, although it will still invest about $22 billion in its operations around the world this financial year. BHP reactivated its Yeelirrie project in 2008 as Australia’s federal and state governments warmed to mining uranium, but in mid-2011 deferred an environmental review and management plan for the project following the earthquake in Japan that crippled the Fukushima Daiichi reactor complex and prompted several countries to rethink plans to use more nuclear power. Chief Executive Marius Kloppers last week said the company had no aspiration to acquire or build uranium-only mines and its exposure to the commodity would solely be through Olympic Dam, the world’s largest uranium deposit, which also hosts copper, gold and silver. Mr. Kloppers said a weaker outlook for uranium prices in the aftermath of the Fukushima disaster was factored into the decision to shelve expansion plans for Olympic Dam, Separately, Cameco’s Australian managing director, Brian Reilly, said the acquisition demonstrates “confidence in the long-term future of the uranium industry.” Cameco plans to establish a mineral-resource estimate for Yeelirrie before starting a detailed environmental-review process with the Western Australian government. Based on preliminary economic evaluation, the break-even uranium price for developing Yeelirrie is expected to be “lower” than that of Cameco’s smaller Kintyre project, also in Western Australia, Mr. Reilly said. Cameco said last month that the economics of Kintyre are “challenging” at current uranium prices. BHP last week said its net profit fell to $15.42 billion for the year through June from a record $23.65 billion in fiscal 2011. Prices for iron ore, coal and other raw materials fell sharply from recent highs and the company absorbed one-off charges on Olympic Dam, its U.S. shale-gas assets and Australian nickel projects. The company has said it won’t approve big new projects this fiscal year, including a proposed potash mine in Canada and plans to expand the Port Hedland iron-ore export facilities in Western Australia. It also has deferred development of a Queensland, Australia, coal deposit. —Stephen Bell in Perth contributed to this article.

Bumi Resources
Daily share price. Monday's close: 890 rupiah, down 5.3%
2,500 2,000 1,500 1,000 500 0 A S O N D J F MAM J J A 2011 ’12
Source: SIX-Telekurs via Factiva The Wall Street Journal

The move by BHP comes as the mining company seeks to conserve cash amid a decline in prices.
although the main reason was cost escalation that had made the project BHP was engineering unviable. Dean Dalla Valle, president of BHP’s uranium division, said that Cameco, one of the world’s biggest listed uranium producers, was well placed to develop Yeelirrie. Yeelirrie is estimated to have a total resource of 139 million pounds of uranium. “Yeelirrie represents an attractive deposit that fits well with Cameco’s vision and corporate strategy,” said Tim Gitzel, the Canadian company’s president and CEO.

face uncertainty amid weaker prices. BHP Billiton recently said it would postpone or scale back projects valued at more than $50 billion to conserve cash and that it would sell one of Australia’s largest undeveloped uranium deposits. Despite the cloudy near-term outlook, Bumi said it remains on track to roughly double its thermalcoal production capacity to 140 million tons in 2014 from this year. Bumi booked a $145.8 million loss from derivative transactions, citing a sharp drop in its share price and the value of a prepayment option for its China Investment loan. Bumi booked a gain of $212.27 million a year earlier. The company posted a foreignexchange loss of $50.28 million because of the weakening Indonesian rupiah, compared with a gain of $80.94 million previously. Bumi’s first-half net loss of $322 million compared with a profit of $231.68 billion a year earlier. Revenue rose 8.5% to $1.95 billion. China’s slowdown has spurred other Indonesian coal companies to look for new customers. PT Bukit Asam Chief Executive Mulawarman told reporters Monday that his company will switch some exports to India from China as India’s demand rises and China’s falls.

Osaka

29 Oct - 1 Nov 2012

Because a lot can happen in a week
Each year, Sibos, the annual business conference and exhibition of the SWIFT community, brings together some 7,000 thought-leaders, decision-makers and technology experts from across the globe. For one week, key representatives of the world’s leading banks, ?nancial institutions and corporates meet with global experts in technology and ?nancial services. They debate common challenges facing the industry, share insights and collaborate on building solutions that help reduce complexity, cost and risk. Hosted by SWIFT, the event has become the world’s premier ?nancial services and market infrastructure event.

BYD First-Half Profit Tumbles
BY JOANNE CHIU HONG KONG—BYD Co.’s firsthalf net plunged 94% amid intensifying competition, the cancellation of government subsidies for car buyers and losses in its solar business. The Chinese battery and car maker, 10% of which is owned by MidAmerican Energy Holdings Co., a unit of Warren Buffett’s Berkshire Hathaway Inc., said Monday that profit fell to 16.27 million yuan ($2.56 million) from 275.36 million yuan a year earlier. The company had forecast a decline of between 75% and 95%. The Shenzhen-based auto maker company said profit for January through September likely will fall as much as 95% because of continued weakness in demand for cars in the domestic market and that lower sales for its handset division and losses in its solar business also would weigh on profit. Revenue rose 0.2% to 22.58 billion yuan. China in 2009 passed the U.S. to become the world’s biggest buyer of motor vehicles. But sales growth in China has weakened since mid-2010, when the government began removing cash subsidies for car purchases. Competition from foreign car makers’ joint ventures also has hurt domestic auto makers. BYD has been dealt a twin blow by China’s economic slowdown and the deepening euro-zone debt crisis. First-half sales of domestic sedans fell 7%, compared with 6% growth for the overall market. Six senior executives at BYD recently sold a combined 13 million domestic Class A shares for a total of about 184.30 million yuan. They were Vice President Liu Huanming, Vice President Mao Dehe, Vice President Wang Nianqiang, Vice President Yang Longzhong, Vice President Zhang Jintao and company supervisor Zhang Huibin, according to the Shenzhen exchange. A total of 477 million BYD shares, or one-fifth of the company’s share capital, became tradable on the expiration of a 12-month lockup period following the company’s Shenzhen stock-market debut.

Global media partner www.swift.com

18 | Tuesday, August 28, 2012

THE WALL STREET JOURNAL.

CORPORATE NEWS

Sundance Accepts Lower Hanlong Bid
BY RHIANNON HOYLE SYDNEY—Iron-ore explorer Sundance Resources Ltd. has accepted a takeover offer from the Sichuan Hanlong Group that is 21% lower than what it offered a year ago, after a deterioration in the global growth outlook and weak iron-ore prices prompted the Chinese investment group to renegotiate. The ASX-listed company Monday said its board accepted the revised bid from Hanlong of 45 Australian cents (US46.8 cents) a share after China’s National Development and Reform Commission earlier this month warned its own approval was conditional on the acquisition price being “reasonable.” In July 2011, Hanlong—which already owns 18.6% of Sundance—put in an offer at 57 cents per share, which the company’s directors at the time also unanimously recommended. The takeover is the first major deal between a West African-focused iron-ore junior and a Chinese investor, and as such has been closely watched as a benchmark for possible future takeover bids, analysts said. Since the proposal was first announced, however, the global financial markets have come under pressure from continued uncertainty over the sovereign-debt crisis in the euro zone and the slowdown in China’s economy. The price of iron ore has fallen more than 40% since the start of last July and now trades at a twoand-a-half year low. “In the current environment, Hanlong holds all the bargaining chips,” said investment bank Liberum Capital. The revised deal would value Sundance, which owns the Mbalam iron-ore project on the border of the Republic of Cameroon and the Republic of Congo, at A$1.37 billion (US$1.43 billion), rather than A$1.7 billion under the earlier recommended offer. Chairman George Jones said the lowered bid price reflected a change in market conditions and a sharp decline in the value of company’s shares. He said the board had decided to accept it after feedback from shareholders. “The board has reviewed in detail all the courses open to it,” Mr. Jones said. “The board has concluded that, from those available choices, a revised scheme price...is currently in the best interests of shareholders.” Between late April and early July, Sundance stock plunged some 40%. Its shares jumped on the confirmation that the board had accepted the offer. The shares rose 7.5% to 36 cents a share in Monday trading. People familiar with the matter earlier this month told The Wall Street Journal that Hanlong was lowering its bid, and Sydney-based Fortitude Capital Chief Investment Officer Managing Director John Corr, a Sundance shareholder, said the majority of existing shareholders would welcome a discounted deal. Sundance’s Mbalam project aims to mine 35 million metric tons of iron ore annually, making it an attractive prospect to reduce China’s dependence on Australia for the key raw materials used in steelmaking. The explorer said Hanlong “is confident” the China Development Bank will soon make a final decision as to whether to commit finances to the deal, although the bid is now expected to be completed by mid-December, rather than a previous estimate of November.

Associated Press

Ford is betting on consumers in China’s interior to drive new sales. Above, a Ford joint-venture factory in Chongqing.

Ford China Sales Push Targets Inland Market
BY MIKE RAMSEY Ford Motor Co., a latecomer to China’s booming auto industry, is counting on businessmen like Feng Shouming to help catch up to more established rivals General Motors Co. and Volkswagen AG. Later this month Mr. Feng will open his seventh Ford dealership in Wuhan, a city of 10 million people in China’s interior, a vast region that still offers great potential for smaller players like Ford. Much of the wealth that China’s rapid industrialization has created is located along the country’s eastern coast, and car buying has skyrocketed around prosperous cities like Shanghai and Hangzhou. But now the Chinese government, in an effort called “go West,” is pushing investment toward the center and west of the country to bring more prosperity to regions still dominated by farming culture. Ford is betting that push will accelerate car buying in places like Wuhan, even as growth in auto sales moderate along the coast. “The automobile industry here is very young and although it is the biggest in the world, it has only been a thriving industry for a decade,” said David Schoch, chief executive officer of Ford Motor China. While not giving up on wealthier coastal provinces, Ford is concentrating its efforts on the dozens of cities in central China with populations of between 500,000 and five million people, Mr. Schoch said. To make the strategy work, however, Ford needs people like Mr. Feng who are willing to team up with a company that isn’t yet up to full strength in China. In an interview, Mr. Feng said business has been tough, in part because Ford only offers six models in China—the Focus compact and two other small cars; a sport-utility vehicle and a small wagon; and the Mondeo sedan. In Wuhan, Ford faces a strong local state-owned competitor, Dongfeng Motor Corp., which has a full line of cars, vans and SUVs through partnerships with Nissan Motor Co., Honda Motor Co. and PSA Peugeot Citro?n SA. “We just need to hang in there,” Mr. Feng said. “We have every faith and hope in the next few years.” The good news is that Ford is adding a seventh model, the Kuga compact SUV, later this year. On Monday, Ford Chief Executive Alan Mulally visited a Ford plant under construction in Chongqing,

which is Ford’s China manufacturing hub. Because of the heavy investments, Ford’s China operations are losing money. Mr. Schoch said results will improve in the second half of 2012 as Kuga goes on sale. Mr. Schoch added that he thinks Ford is “well positioned” in the hinterlands of central China. Yet Ford isn’t alone in pursuing growth in these regions. Other auto makers are also putting more focus on China’s central and western provinces, too, especially now that some major coastal cities have become so overrun with cars and trucks that they are limiting registrations of new ones, said Bill Russo, an auto consultant in Beijing. “It is only natural that the auto makers are starting to look at how to capture this coming growth. It’s not just Ford,” Mr. Russo said. Last year Ford grabbed about a 2% share of the Chinese market, compared with 7.2% for GM brands and 12.9% for Volkswagen. Toyota Motor Corp., Hyundai Motor Co. and Chinese companies such as Geely Automobile Holdings Ltd. are all ahead of Ford, too, according to LMC Automotive. —Yoli Zhang in Beijing contributed to this article.

China Cosco Battles Losses
Continued from page 15 have chartered ships from foreign ship owners, Beijing made an effort to build and own its own vessels. In 2010 China eclipsed South Korea to become the world’s largest shipbuilding nation by capacity, according to ship brokers Clarksons, five years ahead of Beijing’s schedule. That contributed to a fall in shipping rates. A capesize-class vessel, a large cargo ship, cost around $160,000 a day to charter from a shipowner at the height of a shipping boom in 2008. But recent daily charter rates for a capesize are about $2,800 a day. Cosco—the major listed arm of state-controlled China Ocean Shipping (Group) Co.—bet heavily on China’s continued rise, leading to a jump in capacity just as the market collapsed. The company increased its dry-bulk fleet—ships that carry raw materials such as coal—to around 450 ships in 2010 from about 400 in 2007. But roughly half its fleet was chartered from shipowners in other countries, making Cosco vulnerable to fluctuations in the spot market for freight rates. Last year the company engaged in a high-profile spat with foreign shipowners to halt or repay payments for vessels it chartered at the height of the shipping boom. Cosco said it renegotiated contracts for 18 ships. The company in 2011 logged a provision of 1.4 billion yuan for what it called onerous contracts. Cosco’s 10.5 billion yuan loss last year made the company the worst performer on the Shanghai exchange’s so-called A-share list in terms of earnings. The company’s total liabilities nearly doubled to 107.3 billion yuan last year from 56.2 billion yuan in 2008. Market watchers are waiting to see whether Cosco seeks funding from markets, with a likely assist from the Chinese government. “A recapitalization with the government taking up the additional shares might be the best way out,” said Macquarie Securities analyst Janet Lewis. “You dilute your existing shareholders but it’s not like they are doing too well out of the current situation.” A more permanent solution might be a sale of assets or a reorganization, Ms. Lewis and other analysts said. One option could be a shift of Cosco’s container business— shipping large metal boxes, usually full of exports—to another statesupported company, China Shipping Container Lines. CSCL didn’t respond to requests for comment. Another course, said Johnson Leung, head of transportation at Jefferies Hong Kong, would be to transfer the dry-bulk division to parent China Ocean.

Spyker, China’s Youngman Plan New Luxury Car
BY CHRISTINA ZANDER STOCKHOLM—The former owner of defunct Swedish auto maker Saab Automobile plans to create a new car based on fragments of Saab technology owned by a Chinese investor who will also finance the new auto-making venture. Spyker NV said it has set up a joint venture with Zhejiang Youngman Passenger Car Group Co. to develop Saab’s Phoenix platform as the basis for a new range of Spykerbranded premium cars. Spyker’s Chinese partner acquired nonexclusive rights to a small part of Saab Automobile’s unfinished Phoenix technology, which was to provide a platform for a new range of Saab cars, a person familiar with Saab’s bankruptcy said. Spyker said Youngman will acquire a 29.9% stake in Spyker and the companies will set up two joint ventures, which will be majorityowned by Youngman. One JV will hold Youngman’s rights to parts of the Phoenix technology. Youngman will invest 10 million ($12.5 million) in Spyker. “Saab is most likely not going to return as a car-maker brand, so let Spyker try and fill its very big shoes,” Spyker Chief Executive Victor Muller said. Mr. Muller acknowledged Spyker and Youngman will need to recruit a large numbers of former Saab engineers familiar with the Phoenix technology, as well as invest “hundreds of millions of euros” to get the project off the ground. The receivers of Saab Automobile’s estate plan to sell the majority of the assets in Saab Automobile, including the Phoenix platform, to a Chinese-Japanese backed electricvehicle JV called National Electric Vehicle Sweden AB, or NEVS. There are doubts over whether that deal will go through. Swedish media outlets have reported NEVS hasn’t come up with the financing for the deal while any new owner of Saab Automobile assets will get the Swedish group’s brand but not the iconic logo that adorns its cars. Spyker and Youngman are still interested in buying Saab Automobile’s assets, Mr. Muller said. The possibility of the NEVS’s deal falling through “is an opportunity that may occur,” he said. Spyker filed a lawsuit Aug. 6 against General Motors Co. seeking $3 billion in damages and accusing the car giant of forcing Saab Automobile into bankruptcy last year.

THE WALL STREET JOURNAL.

Tuesday, August 28, 2012 | 19

CORPORATE NEWS

BillabongPostsLoss AmidTakeoverTalks
BY GAVIN LOWER MELBOURNE, Australia—Billabong International Ltd. outlined a plan to boost profitability, as the Australian clothing retailer posted an annual loss and said U.S.-based private-equity firm TPG was proceeding with its takeover bid. Billabong on Monday reported a loss of 275.6 million Australian dollars (US$287 million) for the year ended June 30 after booking A$336.1 million in charges, mostly noncash impairments. The company had a profit of A$119.1 million in the prior year. Billabong, best known locally for its surfwear, sells a variety of sports, snow and urban clothes and accessories globally under its namesake brand and others such as Tigerlily, Von Zipper and Element. Its shares have slumped badly over the past 12 months as the company lowered its earnings outlook, sold part of its Nixon brand to ease debt, closed underperforming stores and launched a A$225 million capital raising that almost half of all eligible retail shareholders snubbed. Even earlier, the company’s earnings suffered as it sought to expand its retail presence globally by acquiring stores, just as consumers were aggressively reining in spending in the wake of the global financial crisis. On Monday, Billabong outlined a “transformation strategy” aimed at improving earnings. It said the growth would be achieved by closing less-profitable outlets, making its products and stores more appealing, investing in its e-commerce platform and integrating its global supply chain. “We know who the customers are, we know they like the brand,” Chief Executive Launa Inman told analysts on a conference call after the results.

A Shift in Indian Hiring
IT Firms, Including Tata Consultancy, Aim to Add Workers in U.S.
BY DHANYA ANN THOPPIL BANGALORE, India—India’s biggest information-technology companies are stepping up hiring in the U.S. in an attempt to blunt criticism aired during the presidential campaign that outsourcing is costing American jobs. In the latest sign of the trend, Tata Consultancy Services Ltd., India’s largest software company by sales, said it will open a software facility in Minneapolis this year, creating a few hundred jobs. The company plans to hire 2,000 employees in the U.S. in its fiscal year ending in March, a 25% increase from the previous year. “In every market we operate, we want to be tightly integrated with the communities there,” Chief Executive N. Chandrasekaran said during an interview. “In the U.S., it is important to create jobs there,” he added. “It is important for us to be socially connected.” Infosys Ltd., the second-largest Indian software company by sales, plans to hire 2,000 employees in the U.S. this year, almost double last year’s additions. MindTree Ltd. said it plans to hire more Americans to staff four or five software-development centers that the company is looking to set up in the U.S. over the next five years. Wipro Ltd., another large IT company, also says it will increase hiring. The companies’ U.S. hiring plans are overshadowed by growth at home. Tata Consultancy plans to hire 50,000 employees this fiscal year in India, adding to the company’s total global workforce of 240,000. But the U.S. expansion shows how India’s outsourcing industry— which recorded a cumulative $69 billion in sales last year, making it India’s largest export sector—has become more sensitive to criticism in its biggest market. Mr. Romney’s camp has dismissed the allegations. Mr. Romney, for his part, used the phrase “outsourcer in chief” against Mr. Obama, alleging there have been federal monetary grants for companies that employed people overseas. The shift to U.S. hiring is also born of necessity. Washington last year tightened visa rules for Indian employees of these companies, making it more difficult and costly for them to travel to the U.S. to work on short-term contracts. In 2010, the U.S. enacted a law that almost doubled the fees for long-term skilled-worker visas used by Indian technology companies to send staff to the U.S. That has pushed India’s IT companies to rely more on costly contract labor for projects in the U.S., hurting profits. For instance, higher contract labor costs are likely to push down Tata Consultancy’s margins by as much as 0.15 percentage point, according to Prabhudas Lilladher, an Indian brokerage. The U.S. government also is probing whether Infosys abused a temporary business-visa program to get employees into the country. Infosys has denied any wrongdoing. As long as unemployment remains high, there will be such regulatory concerns in the U.S., Mr. Chandrasekaran said. “We will work with it.” Local recruitment, he added, is a better way “to assemble resources in this environment.”

Bloomberg News

A Billabong outlet in Sydney. “Now we have to convert them to buying the brand.” Billabong said it had closed 58 nonperforming stores already and that it expected to shut another 82 in fiscal 2013. The company also said it plans to keep jettisoning low-performing clothing styles. Chief Financial Officer Craig White said on a conference call Monday that TPG, which made a A$1.45-a-share conditional offer for Billabong in July, valuing it at A$695 million, had begun due diligence after confidentiality agreements were signed. Billabong irked shareholders in February when the company and its largest shareholder, founder Gordon Merchant, rejected a sweetened A$3.30-a-share offer from TPG, saying it undervalued the company. Billabong said Monday that its adjusted earnings before interest, tax, depreciation and amortization came in at A$120.6 million for the fiscal year ended in June. Revenue from continuing operations for the year was A$1.44 billion, down 7.3%.

Tata Consultancy plans to open a software center and add 2,000 jobs in the U.S. this fiscal year.
IT companies have faced a mounting backlash in the U.S. for allegedly siphoning jobs to India, where wages are a fraction of those for American workers. Critics say outsourcing has exacerbated unemployment in the U.S. U.S. President Barack Obama, in the run-up to presidential elections this year, has accused Republican challenger Mitt Romney of having outsourced American jobs while serving as head of private-equity firm Bain Capital and governor of Massachusetts. Mr. Obama has labeled Mr. Romney a potential “outsourcer in chief.”

Tiffany Lowers Outlook As Sales Growth Slows
BY ANNA PRIOR AND KAREN TALLEY Tiffany & Co.’s fiscal secondquarter earnings edged up 2%, as the high-end jewelry retailer continued to struggle with weak sales amid a global economic slump. The New York-based company said it expects earnings to decline in the third quarter, with growth resuming in the fourth, which includes the holiday season. Tiffany also lowered its full-year outlook to between $3.55 and $3.70 a share, from $3.70 to $3.80, in line with analyst expectations of $3.63 a share. The jeweler’s shares were up 7.3% in midday trading in New York. Tiffany’s world-wide same-store sales fell 3%, while the Americas posted a 5% drop, and Asia-Pacific and Europe both saw 7% declines. “Not surprisingly, sales growth has been affected by economic weakness in a number of markets and by a very challenging prior-year comparison to a 30% increase in world-wide net sales,” Chairman and Chief Executive Michael Kowalski said. “We think it is only prudent to maintain a cautious near-term outlook about global economic conditions and the effects on customer spending, with year-over-year growth comparisons in the next few months also being pressured by the strong increases we experienced last year,” Mr. Kowalski said. Sales at Tiffany’s New York flagship store declined 9%. The flagship store, along with other domestic stores, saw higher sales to Japanese and Chinese tourists that helped offset a decline in spending by European tourists. Global economic weakness has weighed on luxury retailers, like Tiffany. In a trend that began during the last holiday season, the jeweler has posted weakening margins, a sales slowdown in Asia and markedly weaker sales in the U.S. and Europe. Tiffany was also up against tough comparisons. In last year’s second quarter, world-wide sales increased 30%, net earnings rose 33% and net earnings excluding nonrecurring costs rose 58%. For the quarter ended July 31, Tiffany reported a profit of $91.8 million, or 72 cents a share, up from $90 million, or 69 cents, a year earlier. Revenue rose 1.6% to $886.6 million. Gross margin narrowed to 56.3% from 59%.

20 | Tuesday, August 28, 2012

THE WALL STREET JOURNAL.

MARKETS

Apple Jumps on Samsung Woes
BY MATT JARZEMSKY NEW YORK—U.S. benchmarks crept up after a legal victory sent Apple to an all-time high and a handful of companies announced merger plans. The Dow Jones Industrial Average rose 2.15 points, or less than 0.1%, to 13160.12 in ABREAST OF early afternoon THE MARKET trading. The Standard & Poor’s 500stock index gained 3.19 points, or 0.2%, to 1414.32. The tech-heavy Nasdaq Composite Index added 9.06 points, or 0.3%, to 3078.85. Apple climbed 2% after winning a patent battle with South Korean rival Samsung Electronics, in which Samsung was ordered to pay the U.S. company $1.05 billion. Apple’s advance helped put the Nasdaq’s 100-stock large-cap index on track for a 12-year closing high. That index, while less known than the broader Nasdaq Composite, serves as the basis for financial products such as the PowerShares QQQ, one of the biggest and most heavily traded exchange-traded funds. Google, the provider the Android operating system that Samsung’s devices run on, fell 1.4%. Dollar Thrifty surged 7.4% after the car-rental company agreed to be acquired by Hertz Global Holdings in a deal valued at roughly $2.3 billion. Hertz leapt 11%. “You can argue that we may be closer to overbought than oversold. It’s a ‘merger Monday’ today and the response is relatively muted,” said Steve Sosnick, equity risk manager at Timber Hill, the marketmaking unit of Interactive Brokers Group. “It’s a big vacation week. With the lack of news and lack of volume, you expect the market to meander.” In other deal news, M&T Bank agreed to acquire Hudson City Bancorp for about $3.7 billion, giving the Buffalo, N.Y.-based buyer a franchise stretching from Connecticut to Virginia. M&T rose 4.8% while Hudson City soared 16%. Business software maker Kenexa leapt 43% after International Business Machines agreed to buy it for $1.3 billion. IBM eased 0.7%. Tiffany climbed 7.4%. The jeweler reduced its earnings forecast for the year, but to a range that analysts said met their expectations amid broader signs of deterioration in the luxury retail market. In the bond market, U.S. trading, benchmark 10-year notes rose 8/32 in price to push down the yield to 1.652%. 600 index added 0.5% to 269.20. London markets were closed for a holiday. Nokia jumped 7.7% in Helsinki on the view that the Finnish handset maker may have an opportunity to grab much-needed market share. That also translated into gains across the technology sector. Infineon Technologies rose 1.9% in Frankfurt and STMicroelectronics added 1% in Paris. European stocks had been treading water for much of the morning, but they perked up after comments by Charles Evans, president of the Federal Reserve Bank of Chicago. In prepared statements for a speech in Hong Kong, Mr. Evans, known as a policy dove who doesn’t have a vote this year, said the Federal Reserve needs to immediately start purchases of mortgage-backed securities until the economy shows it has clearly improved.

CCB Sees Bad Loans On the Rise
BEIJING—China Construction Bank Corp., the country’s secondlargest lender by assets, warned of risks from the bank’s rising nonperforming loans in eastern China, though it said it has set aside sufficient provisions against loans made to a private company that has already filed for bankruptcy. Vice President Chen Zuofu told a news conference in Beijing Monday there was a sharp rise in the bank’s nonperforming loans in the first half of the year to borrowers in the Yangtze River Delta, a region that is a major hub for small manufacturers and exporters. In some areas of the wealthy east-coast province of Zhejiang, which is part of the Yangtze region, the bank’s ratio of nonperforming loans is now above 2%, he said. “The nonperforming-loan ratios for the retail, wholesale and manufacturing sectors also witnessed a rise in the first half of the year,” Mr. Chen said, adding that it is hard to estimate the ratio for the second half of the year. CCB said that overall, its badloan ratio fell to 1% as of June 30 from 1.09% at the end of last year, but loans overdue for more than three months increased 33.5% from the end of last year, raising concerns about the bank’s asset quality. Overdue loans are an indicator for future bad loans. Mr. Chen said that CCB rolled over nearly eight billion yuan ($1.26 billion) of loans in the first half of the year, up around 10% from the same period a year earlier. Rolling over loans is a standard practice for banks, and is a way to give struggling borrowers more time to make good on loans. At a separate news briefing in Hong Kong, CCB Vice President Zhu Hongbo said the bank has allocated sufficient provisions against loans extended to Zhejiang Zhongjiang Holding Co., a Hangzhou-based firm engaged in property, trade, manufacturing and investment that filed for bankruptcy in January. “We’ve made provision for this bad debt since last year. We’ve been very cautious to do loan provisions and we believe we have had sufficient provision already,” said Mr. Zhu. Local magazine Caixin reported last month that CCB has an exposure of more than three billion yuan to Zhongjiang, citing unnamed sources. The bank’s Zhejiang branch had extended one billion yuan of credits to Zhongjiang at the end of 2010, but the loan exposure grew rapidly in 2011 despite the private company’s deteriorating financial condition, the report said. Mr. Chen confirmed that the bank has lent Zhongjiang three billion yuan. CCB on Sunday reported a 15% gain in its first-half net profit from a year ago. The profit growth, though better than expected, was still far below the 31% profit rise in the same period last year. Net interest margin, an indicator of the profitability of a bank’s lending business, stood at 2.71%, barely changed from 2.70% at the end of 2011. CCB Vice President Pang Xiusheng said in Beijing on Monday that the bank would face increasing pressure to maintain its current interest-rate margin, though it would strive to stabilize the gap at about last year’s level. He didn’t elaborate. —Grace Zhu, Yue Li and Fiona Law

European Stocks

Technology plays like Nokia led the market higher. The Stoxx Europe

Regulators Rethink Pre-IPO Chatter
BY JEAN EAGLESHAM AND TELIS DEMOS U.S. securities regulators are reviewing whether to ease limits on what companies can say ahead of initial public offerings, after lawmakers complained small investors were kept in the dark during this year’s botched stock sale by Facebook Inc. Mary Schapiro, chairman of the Securities and Exchange Commission, has asked her staff to review the “quiet period” rules barring remarks about a firm’s prospects around the time of a share sale, according to a letter she recently sent to Rep. Darrell Issa (R., Calif.). “We should review our communications rules and the application of the quiet period” in light of changes in technology and the stock market in recent years, she said in the Aug. 23 letter, which was a response to one Mr. Issa sent in June. The SEC’s stance could open the door to more changes for IPOs, even as the agency has yet to complete rules to implement modifications set out in this year’s Jumpstart our Business Startups, or JOBS, Act. The law was designed to facilitate capital-raising for some companies.

Pop Up
Average stock-price rise in U.S.-listed company IPOs from offer price to ?rst-day close.
80% 60 40 20 0

Year to date: 16%*

'00

'10
*As of Friday

Source: Dealogic The Wall Street Journal

The JOBS Act, and Facebook’s flubbed debut in May, have made IPOs one of the most controversial issues in markets this year. Facebook’s share price fell sharply from its $38 debut, exposing what Mr. Issa called “substantial flaws” in the process. The widely anticipated offering suffered from technical glitches on the Nasdaq Stock Market, and the company and its advisers were criticized for pricing the stock too high. Shares closed Friday at $19.41. The

deal also revealed how large clients of certain banks can get analysis about a company’s prospects that is unavailable to average investors ahead of a deal. Ms. Schapiro declined in her letter to comment on Facebook. It isn’t clear when the review of IPO communications rules, which she called ongoing, began. Ms. Schapiro said the agency could review rules that gag executives ahead of an IPO to prevent hyping of a stock. Her letter responded to a call by Mr. Issa, on behalf of the House Oversight and Government Reform Committee he chairs, for changes to rules on how public offerings are priced and regulated. Mr. Issa said in his letter that in the case of Facebook’s IPO, “the informational disadvantage to the less informed public proved harmful.” Shortly before the offering, Morgan Stanley and other underwriters of Facebook’s $16-billion deal analyzed and passed on warnings from the company about business risks due to a user shift to mobile devices. The analysts’ discussions, with handpicked clients, prompted an inquiry by Massachusetts state regulators into whether rules were broken. Banks have denied any wrongdo-

ing and say they were following standard practices for communicating with investors. The existing quiet-period rules allow for communication with clients ahead of an IPO, but not broad publication of research. Ms. Schapiro said current rules enforcing a quiet period offer “real benefits.” The central role of the IPO prospectus—company documents filed with the agency and available publicly—ensures “comprehensive information about the company is widely and readily available to all investors,” she wrote. Lawyers also say banks and corporations would embrace an extension of “safe harbors” from lawsuits for research and other communications during the IPO process, as Mr. Issa advocated. Some of Mr. Issa’s more radical proposals may stand little chance of success. He recommended the SEC consider encouraging companies to use “Dutch auctions,” in which prices are determined by a bidding process open to all investors. Most IPOs use a “book-building” process, in which underwriters and the company set a price after discussing the share issue with big investors.

Boost in China’s Cotton Output Has Ripple Effect
BEIJING—Cotton output in China’s biggest producing region is expected to be 4% higher in the current marketing year, putting downward pressure on global prices and squeezing textile exporters. China is the world’s largest producer, consumer and importer of cotton, and if the output forecast is realized, it will reduce its need for foreign cotton while adding to already high domestic stocks. Xinjiang Uygur Autonomous Region, which accounts for nearly half of the nation’s cotton output, is expected to see a harvest of 3.2 million metric tons in the 2012-13 marketing year that began Aug. 1, up 4% on year, the local government said in a statement on its website dated Friday. This will help offset production declines in other regions caused by reduced planting, doing little to change the oversupplied domestic market. Although China’s government hasn’t released harvest forecasts, calculations based on the Xinjiang government’s numbers suggest its overall output will likely total 6.5 million tons, down slightly from last year’s official output of 6.6 million tons. The U.S. Department of Agriculture recently predicted that Chinese output this marketing year will be 6.76 million tons. China last year built up the world’s largest cotton reserves, of 3.2 million tons, through a stockpiling program that aims to protect farmers’ incomes. A combination of this buying and import restrictions have pushed domestic prices well above global ones, which in turn hurt Chinese textile companies with limited access to cheaper imported cotton. “Demand for locally produced cotton, especially from Xinjiang, has fallen sharply as China’s textile industry slows,” the local government said, adding that the government’s management of the cotton market is

Agence France-Presse/Getty Images

Cotton pickers in China’s far-west Xinjiang region during last year’s harvest. facing “unprecedented” risks and challenges. Weiqiao Textile Co., China’s largest textile company, said in midAugust its first-half net profit slumped 90% from a year earlier to 54 million yuan ($8.52 million). December cotton futures on the Intercontinental Exchange have slid 21% so far this year. During the same period, China’s cotton prices have fallen just 6%. Spot cotton prices in China are near 18,500 yuan per ton, or 20% to 30% higher than the cost of U.S., Australia and Indian cotton. —Zhoudong Shangguan

THE WALL STREET JOURNAL.

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